This Interview was previously published on Michael’s excellent ShiftingShares website and he has kindly agreed that it can sit on both our sites. He has many quality interviews on his website and make sure you pick up a copy of his FREE ebook – there is a link at the top of my ‘Weekly Performance’ page. You can find Michael’s website here:
I have had a link to this Interview sat on my Homepage for ages but I am quite confident a lot of Readers won’t have noticed it and that is probably even more true for people who are new to this whole WD silliness. So it seemed a good idea to create this as a Blog so it sits in the Archive and people can go back to it if they fancy another dose at any point in the future.
Interview with Pete @WheelieDealer
This interview was the result of a phone call between Pete and I in February 2018. Pete has been investing for over twenty years and was the deserved winner of the “Most influential Twitter account for UK shares” at Mello 2018. He is a well-known shares blogger and updates his website regularly – a free resource bank of knowledge than can be accessed here: www.wheeliedealer.weebly.com/
Please tell us about yourself Pete, how did you get involved in the stock market and what attracted you to the stock market?
I think I’ve always had an interest in the stock market. I remember it came from when I was a little kid, my Dad used to get the Daily Mirror every day, he was like a real left-wing socialist type and I feel like I rebelled against that. You had the Daily Mirror – it was like The Sun, you had a page three and everything and it was just a complete rag. But the thing was, there was this really weird box every day that would appear and it was called the FTSE 100, and it just had the FTSE 100 shares and what their moves were for the day.
I was totally like “What the hell is that doing in there?”, it made no sense whatsoever. And I was just looking at it as a kid and I didn’t understand it, thinking “What does that even mean?”.
How old were you at that point?
Quite young, probably like nine or something, really young. Then what did it was obviously I’m of an age where the privatisations came out, so the BT privatisation and the British Gas, Rolls Royce, all those things, and I did BT myself, doubled my money on it, and British Gas, and I did really well on that. It gives you the bug! And you think “Ah, this is easy money, isn’t it? Not having to work!”.
Yes, I’ve been through that stage! When was this, how old were you around this time?
I guess that was really young, probably 16-18. So, still young and still not having a lot of money.
So where did you get the money from, a paper round or something?
I had some savings or something, I can’t really remember. Probably because I’ve been saving as a kid. I used to work as a Saturday boy, in Bejam Frozen Foods – they became Iceland. So, I used to do that sort of thing and I was working when a few of the privatizations were around, so I had a bit of money, and I could never buy the maximum of what I wanted to and quite often you would get scaled back anyway. But the thing was they give you the bug.
Then after that I didn’t really do anything with the stock market for a long time and then what did really trigger it was that I had a motorbike accident, when I was 33, which was 1998. And as a result of that I got a bit of a small insurance pay out through that, so I had a chunk of money from there. I’d been saving to buy a house, so I had quite a lot of money saved up, that I was going put into a house.
But all of a sudden, I didn’t need to buy a house, because I now live in a housing association property, where they come and fix everything, and I’ve got an assured tenancy for life. It’s not too bad, so why would I want to buy a house?! So, I had that cash as well, and all this cash, and I thought “What am I going to do with it?”. I didn’t really have any idea.
I’m sure plenty of people did have an idea!
It was around the time of the Dotcom boom, so it was completely the wrong time to have money. And what happened was I thought about a financial advisor but I came to the conclusion after reading a few things, probably like Investors Chronicle and Motley Fool; I came to the conclusion, that if I was going to have an independent advisor, I’d have to know something about it anyway, or else I wouldn’t know if they were telling me anything sensible.
If I’ve got to learn about it anyway, what is the point of doing that? I basically ended up starting to learn it all myself. My first forays were to buy lots of units trusts, so I bought a real span of unit trusts. Obviously technology, I bought them right near the top, which was a bit of genius there. I bought Japanese funds, American funds, European funds and some UK funds, so a real spread of stuff. But lots of them were a complete disaster, buying things like small cap UK funds, which you know went really bloody horribly wrong.
But at the same time, I also started investing in individual shares. I had some real wrecking disasters and I had some that went very well; it gets you into it and gets you started. The point is you get loads wrong – you’re going to – but it gets you fascinated by the game. So that is probably how I started, really.
So, what was the draw down in the Dotcom stage?
Oh, chronic. Between 1999-2000 and between 2003 I think my net worth dropped a lot, let’s say around 40% or 50% and the only thing that saved me, was because I had unit trusts that were spread across a mix of things and I had some other stuff, like I’ve got this thing, and I still own it to this day, called a Prudential with-profits fund.
It’s absolutely amazing, it’s one of these, if you remember there was this fuss about endowment policies where they were tied to mortgages, its effectively like an endowment policy but without a mortgage. So, it’s like the asset side of the investment product that they used to create endowment policies which turned out so badly. Basically, the way it works is they declare a bonus every year depending on how the fund has been doing and this spreads the returns over time. Say for instance, this fund has got shares, bonds, property, everything.
Quite well diversified.
Yeah, one of the biggest funds there is. The way it works: let’s say one year they have a really good year and they make 10% on the fund, what they actually do is, when they declare the bonus the following year they might only declare 5%, so they retain a load for the future. And then when the next year comes, they might say “We didn’t have such a good year, so we’re only going to declare 4%”. So, if they are having a bad year, they say “OK, we’re going to pay out 4% even though actually the fund lost 3% this year”.
The point is they build up these profits over time. This smoothens the return, which is probably the best way to look at it. That is a solid investment. I think I put 30% of my cash into that and it gave me a real solid return. At the time I was working in a big computer company, Fujitsu, so I was investing money every month as well, and that all helps, doesn’t it?
It does. I can remember you telling me before, people in the Dotcom boom they would buy a stock that would be tipped in the news, and people would buy and make something like 50% in a day. That sounds really amazing!
I didn’t really get that involved in it, because so often they would just move so fast, it was just insane. So, you would have a new company, like zoo.com or something, that does tickets to zoos, but there would be no company there and it was just a name and a website – that was all it was; it just had a homepage.
The internet and websites had hardly taken off; we’re talking about the days where we had dial-up, and had a dial-up modem, so to view zoo.com’s homepage probably would’ve taken three hours for it appear on your screen!
The whole thing was an absolute fiasco. So simply by having zoo.com, simply by being registered as a company, simply by being floated on AIM, this company would suddenly be worth £200 million in a day – it was that kind of insanity. There was utterly nothing behind it at all, totally vacuous. It probably only existed for a month as a company, it was completely absurd. And that was just going on all the time.
Something would be tipped in the Midas column, in the Daily Mail on a Sunday and Monday it would jump 200% or something. In some ways I was lucky because I didn’t get sucked into that kind of stuff and I did have more solid companies, but I still got caught on things like Marconi that went bust, and you think how can that go bust? It’s been around forever, but it was up to its eyeballs in debt.
It sounds a bit like the crypto bubble in 2017 when a company would announce something to do with Bitcoin or blockchain. I had a strategy, when I saw an RNS and it would say blockchain in the title, I didn’t even open the RNS and I just bought, because I knew it was going to spike. Dotcom sounds like that level of insanity but on steroids.
Well, I saw the crypto bubble in 2017 and I would say the crypto bubble wasn’t even 5% of what Dotcom was like. Dotcom was bad, everybody who worked in the office that I worked in (and we are talking about a complete floor of people, probably 80-90 people) I bet you 70 out of those 90 were buying shares. Everybody, you would get in a taxi and the driver would tell you which shares to buy, you’d go into a supermarket and the cashier would be talking about shares. It was like that, it was utter bonkers. But this was really the tail end, and I came in at the tail end.
I had a friend who got in a lot earlier, a couple of years before, and he made lots of money. I think he turned £20,000 into £150,000, but then he watched it all go down to zero. The thing was he didn’t have a bloody clue what he was doing, he just got very, very lucky at the right time, though it would have just been luckier if he would have sold it all. Part of the reason he didn’t sell was because he didn’t want to pay tax on it!
Oh dear, I want to pay as much tax as I legally have to! I think often greed kicks in. Last year I met a guy in Starbucks in Frankfurt. This was a day when my internet broke and I went down to the local Starbucks. He asked me what I was doing, so I told him I trade stocks. He then told me he made a million Euros in the Dotcom boom.
He had a good life for a while, went on a few fancy holidays and enjoyed it, but then he lost it all because he didn’t sell out. He’s still working to this day as a software developer, when he could easily have been retired nearly twenty years ago. It was horrible to hear. He did say though crypto would be the same and it probably was to some people. Some people will have made paper millions and then lost paper millions too, which is quite sad.
What I am wondering, the crypto bubble came round quite quick, how long did Dotcom actually last?
I think it was all through the 90s that the stock market was doing quite well, it was the Goldilocks period. It had been rising and rising and rising and I think it all culminated with the Dotcom frenzy, because the internet was just getting started. I would say it was 1999/2000, it probably started 1998 and it really went vertical and absolutely bonkers in 1999/2000. It took a long time to unwind, probably three years.
It was funny because we all think about 2008 but for me I think of the early 2000s as a more scary period, probably because I had no idea what I was doing but it was also that it just seemed to drag on and on.
At least with 2008 we seemed to get over with it pretty quick. Yes, we had the Credit Crunch in 2007 or so and it dropped in 2008/2009, but then it was over and off we go to the races. But 2003 to 2007 was a slow grind upwards, really.
So, it popped in 2000/2001?
I’d say the peak was 99/2000 – probably the first three months of 2000 if you look on the charts.
You can see it on the charts it was so elevated. Even now, we’ve had nothing like that. It’s just like another level.
Do you think that with Dotcom and the Credit Crunch happening so close it knocked quite a few people out of stocks? There aren’t many my age who does it and I don’t know anyone in my real life, apart from the community on Twitter, who invests in stocks – so outside of the internet. Actually, I know one guy, but I am not sure if he is too serious about it.
I think you are right. I think the Dotcom crisis scared a lot of people. It took a lot of people who are in their forties/fifties/sixties now, out of the game. A lot of them went into property, that’s been a big thing. Then as you say I think the Credit Crunch probably stopped people who were in their late twenties and early thirties – they don’t really do stocks because they are all trying to save for houses and stuff.
To me that is the reason they should get into stocks, because the interest rate is going up. The mortgage rate is going up higher than the interest rate. If you’re a house owner, your house goes up in value more than interest, so it’s just getting more and more unattainable if you are not a house owner.
So really, you need to be investing in stocks otherwise you haven’t got a chance, otherwise you are going to be working longer and longer and with your money eroding away in a savings account, below the real interest rate which is still negative so you get punished for saving.
It’s so many variables and I think a lot of it is that young people just seem to not have the money, do they?
Yes, I agree. I heard stories pre 2008 when people got a degree and it wasn’t a case of ‘can you get a job in one of the big four?’ – it was a case of ‘which one of the big four do you want to work for?’. I can remember I applied to an internship at Ernst & Young, now EY, and there were 200 spots available and usually these internships would get over 20,000 applicants. Statistically there was a 1% percent chance of anyone getting it, and also on the application form it always asked “Do you know anyone at EY?”
The real chance of getting that then was less than 1%, so there were far too few decent jobs, and even the full time salary for that position left a lot to be desired. Everyone has a degree these days too.
It is a lot more competition.
Yes, a lot more competition. There are jobs, but not enough good ones!
Back 15-20 years ago, only 7% of the population went to get a degree. As a graduate, you would be such an unusual person and obviously you were very sought after and of course you were going to make more money. But nowadays house prices are going up, rents are going up, it burnt the spending power that younger people have.
It seems like people are going for experiences these days; whereas house prices have gone up, holidays and travels are a lot less expensive. You can get on a Ryanair flight for literally a tenner to Brussels. I don’t like flying Ryanair, but if you think about it – the taxi to the local cinema is a fiver. It is amazing what can be done with such little money.
But back to your early experiences, what was the absolute scariest day on the stock market? And how did you feel?
That is interesting, because I said earlier that 2003 was in many ways the worst times but actually thinking about it in the Credit Crunch in 2008/2009 it was pretty horrible, you literally would look at your portfolio on a night, and every stock you held, even the big FTSE 100 quality, was falling over 10% in a day. You’d look down your list on your ADVFN app and there were stocks that had fallen 15%, and we’re talking big quality small caps, FTSE 250, and they were falling 15%, 8%, 12%, everything, and the whole screen would be red.
We had some tough times recently in October  but I don’t remember I had any day where I had loads of stocks that were falling 6-7%. I’d have one or two down 6 or 7 percent but a lot of them were down 2 or 3 [percent], you’d get the odd blue one, you never saw a blue stock in the credit crunch mate, forget that. Everything, whatever it was, was red.
There were just times when you thought “this is never going to stop”; I think one of the things that was different about the Credit Crunch was that you got the feeling that the whole financial system could collapse. You got that sense, and though it was probably a ridiculous fear, you’d watch Newsnight, you’d watch the news, Channel 4 news, Bloomberg, CNBC, and all you’d hear was how this bank isn’t lending to this other bank, none of them have got any reserves, they’ve all got problems with credit default swaps.
The problem was really around collateralised debt obligations, bundling packages of dodgy loans, but then you’d have this thing called a CDS, a credit default swap, and so you had all the problems caused by the mortgage, and then they’d invent this new problem around the CDS, and they’d say that if you look at the global market of CDSs then it’s worth trillions of trillions of dollars. You’d be thinking “Well, I don’t understand what this is”, and really that turned out to be a load of nonsense, and I think there is hardly ever anything mentioned about CDSs because that wasn’t the problem; the problem was the bad debt and that the banks stopped trusting each other. They wouldn’t lend to each other to keep the system going, because every bank would look at another bank and think “Well, you’re going to go bust so I can’t afford to lend you any money!”.
It got to the ridiculous situation where the whole liquidity of the financial system ground to a halt; there was nothing there.
It must’ve been quite scary when Lehman went bust, and knowing what the news is like they were probably talking about all the others going bust as well.
Oh totally, all you ever heard was about all the other banks that were going to go bust, you know, and no one seemed to have any idea. When you had Gordon Brown and all the American heads, they were all having these discussions, and you really didn’t get much of a sense that they knew what they were doing.
Well, that’s like politicians anyway in general, isn’t it?
Our experience of politicians has been so bad it’s like we’re thinking: “Oh God, can these people really save the world?”. As it happened, they basically pumped the system with government cash to stop it going bust but in a way they made a mistake with Lehman Brothers and they probably shouldn’t have let Lehmans go that day because that caused more problems, and then you got things like Robert Pest going on about Northern Rock on the news – it just caused so many problems.
There’s an argument though, isn’t there? That if you prop Lehman up, then what’s next? They would’ve just taken more risk because they know they could get away with it and that’s exactly what Deutsche Bank are doing now. They’ve got trillions and trillions’ worth of derivative exposure, the balance sheet is a mess; I think the German taxpayer will bail them out as if they let DB go bust it’s going to send shockwaves everywhere just because they’ve got so much exposure to everything, which is a horrible thought.
Got the same problem with Greek banks, Italian banks, you know the idea that the financial system is fixed – I don’t know how confident we can really be in that. I think the financial system is probably better than what it was, but I’m not convinced. It’s certainly not resilient to every possible event.
It’s not really helping that Trump is deregulating a lot of Sarbanes-Oxley and all of these measures that were put in place and he’s undoing them all! There are so many variables, luckily I just invest in actual stocks and especially with the smaller stocks you can see what’s happening and they’re a bit more resilient to macroeconomic events which is nice. Obviously, they still go down when the Dow tanks, even though nothing has actually changed but the market makers have dropped the price.
A lot of it for you is that you’re much more of a short-term trader anyway, aren’t you?
So, you’re not really exposed in the same way that I would be where I’m holding plenty of stocks.
That’s true. Were you actually buying much in 2008, or were you selling? What was your strategy when you were watching it every night?
I was doing a bit of both and I’d sold a lot of things and did move into cash, but I also hedged a lot; I used a spread bet account and what I used to do was short the bank sector and short retail, and both of those did very well for me. They were good shorts, and I also shorted the FTSE 100 a bit too. That was the only thing you could do really, because you just don’t know where the bottom is going to be.
No, and ultimately though the bottom is 0p, it’s never going to get there.
Peak to trough on the 2008-2009 crisis was 50%, I think. It fell 50%.
That’s quite a lot.
A hell of a lot. I tend to take the view these days that it takes effort and a while to create a long-term portfolio that you’re happy with, and a collection of stocks that you like. I don’t like to sell them before a market sell off – what I’d rather do is sell a bit maybe, but the main thing is to hedge.
Yes, I remember you saying before that you quite like to hedge.
So, at the moment whilst we’re talking, I’ve got shorts on the S&P 500, so if the markets drop, my portfolio, my long term portfolio of stocks is probably going to suffer, but I’ll gain on the shorts, so it offsets some of the damage. It’s difficult. In an ideal world you’d short really heavily, to offset most of the damage or even more, but I find practically that’s hard to do, and its better in some ways just to short 20% to 25% of your portfolio – it’s more manageable.
It would be quite hard for you to sell everything and rebuy it too; it would take time.
It’s the effort and the cost. Selling all of these stocks is going to take a long time. The good thing about shorting the index is it’s almost like an on-off switch.
That makes sense.
If you were to short the extent of 20% of your PF, it’s like you’ve just sold 8 or 9 stocks or something, and you can do it in an instant. It’s quite an efficient and effective way of doing it, and because its like an on-off switch you can close the short very fast too.
Do you tend to look for correlation? I suppose it would be pretty hard because you’ve got a portfolio of stocks, but do you tend to look at what correlates the most, like FTSE 250 or FTSE 100?
You want to, but the problem is the FTSE 100 misbehaves a lot. Because at the moment, it’s reacting to the pound quite a bit, though that is sporadic. It doesn’t always react to the pound, but also it’s got a heavy weighting; it’s really heavily weighted to a very small number of stocks, so things like Shell, RDSB, is a massive weighting within the index.
You can have a crazy situation where loads of FTSE stocks are up and yet Shell is down a load and it drags down the index. It’s not a great index these days.
The FTSE 250 is quite a good correlation with my portfolio, but the difficulty of the FTSE 250 is that you can only place spread bets during market hours, and quite often I’ll do a bet at 10pm at night or a similar time. It has an advantage so that if you stick to the S&P 500 and the NASDAQ and the FTSE 100 you can trade them outside of hours, which is quite a nice feature. FTSE 250 also has huge margin requirements.
I hadn’t thought about that, and the UK market tends to follow the US a lot of the time, so if there’s a big move, and you’re watching a big move on the Dow, and you want to get short you can get short. It’s likely the FTSE 100 will open down the next day. It’s great when you’ve got a big portfolio of longs and you can hedge it effectively.
I find that I don’t like to make decisions during the day; it’s one of my real golden rules that I won’t make a buy or sell decision during the day.
You’re too influenced by the noise and the emotions and the share prices going up and down, weaving around, and the noise of the day.
So, what I tend to do is if I’m going to buy a share then I’m thinking about buying the share for several weeks before or maybe even several months before, I don’t suddenly go “I’m going to buy Glaxo today”. It’s a carefully thought through proper researched decision, and I’d rarely buy the whole position straight away too. I usually buy a bit of the position, and buy a bit more, and a bit more.
That’s a good strategy, too.
It’s the same with selling – I don’t want to suddenly panic sell something. What I prefer to do is to let the day complete. Then you can look at the S&P 500 and see how it has actually moved for the day and what chart pattern that is creating. A lot of stocks are driven by the chart pattern, and the trouble is intra-day you just get a false idea of what’s really happening. Let the full day complete. Many people just trade off weeks, some will let a full week go by before putting a buy or a sell on, and it’s just a lot less panicky; it’s a more robotic way of doing things. Let the candles form, let the patterns be established, and then make your decision if you’re going to buy or sell. As it’s out of hours you can take your time and open a short on the S&P or close a short – it’s easy.
There’s that saying, isn’t there? If you stare at the tape all day, you’ll end up feeding it.
I think it’s true. It’s happened to me before. I’ve seen a big lurch down to think I should get out of here, only for it to then reverse, and it can be down 10% or more and you think “This isn’t just a tree shake, it could be a big move”, and sometimes it’s a good decision because insider trading does happen, and when a stock is grinding down lower for weeks, there’s usually a reason – you don’t find out straight away, but you do eventually.
Sometimes I’ve watched a stock go down on large volume and sometimes there ends up being a placing, but then sometimes it ends up flat and you think “Well, that was stupid. Not only am I out of the position but I’ve; now got to pay 12% more just to get back what I actually had”.
And you’ve also got that situation when the share has been falling for a few days and it does do that, you’ve then got a beautiful hammer candle, a lovely reversal, you should actually be buying it!
And then you get the traders piling in! What has been the best day on the stock market and how did you feel? I imagine you’ve probably had some nice takeovers at some point.
It’s hard to remember a best day. We get good days, and we get some very bad ones, but what I do remember and it’s fresh in my memory, is the first week of 2018 was the week when I made the most money for a week that I’d ever done. I’d had such an incredible week. It was stunning, I just made so much money in that first week, and it was probably like 4% of my portfolio – a lot of money in one week. I just thought “Bloody hell, if the rest of 2018 is like this, then wow!” That first week just sticks in my mind because it was so huge, and then 2018 just turned into a proper pile of poo.
Yes, a very forgettable year!
I just remember that first week thinking “Oh, I love the stock market”!
I remember that period in December 2017, and then 2018 was going to be fantastic, but it never really got out the starting blocks. But there’s always the rest of 2019 and 2020.
After that first week then it just went downhill!
What’s been the craziest fraud or the biggest move that you’ve seen and how did you experience that?
Well the one that stands out for me is [name removed].
What was that?
It was [name removed].
It was run by a notorious CEO, an absolute fiasco, it was just so obvious it was a fraud, and it was just pump and pump, and hype and hype, and it just went up and up, and they carried on buying more companies. It was hilarious because you had Tom Winnifrith, and Evil Knievel, and Lucien Myers who were all digging into it and saying what a joke it was. It had things like its Head Office was a country club. The CEO had form because he’d been involved in a dodgy company back in the Dotcom days, and nobody really worried about that. I knew people who weren’t even particularly in the shares telling me to buy [name removed], and I was saying “No, it just looks a joke” – I knew it was ridiculous. But it carried on going up and up, and eventually it all exploded.
What was the company’s name?
It was called [name removed].
Ah, I thought that was the ticker.
No – it was [name removed]. It probably stood for something but I don’t know what.
I doubt the CEO knew either!
It became another listed company.
What exactly did [name removed] do? They just acquired companies?
It was something to do with legal services, and they just acquired more and more businesses. It was all just like dodgy stuff really, frauds.
What did the market cap go from? How many times did it bag?
I don’t remember, it went up a lot, and everyone was in it, it was one of those classic bubble stocks where there was no real substance behind it and it went to the moon. Complete ridiculous. And that was fairly recent that was.
Is this the guy who is back now?
I believe he’s around some other stocks again now, yeah.
I remember someone posting there’s a fraudster back in a new company now. I would probably trade that if it makes me money but not one I’d buy for fundamental reasons. So, the friends that you had in it or the people that mentioned it to you – I’m guessing they got trapped? People like this never ever sell, do they?
They don’t really know much about the stock market other than someone in the pub has told them about this stock, that’s what’s happened, and it’s going to be amazing, it’s going to go to the moon, you’ve got to buy this stock…
Yeah, funny how that often happens, but also a bit sad. What has been the worst thing that has happened to you or to someone else, and how could you or they have prevented that?
The big one for me was one of the first things when I first started investing was that I bought shares in something called Just Group, and it had this TV series called The Butt Ugly Martians – a kids TV show – and it was just ramped to high Heaven. I was naïve and stupid and put loads of my cash in, I think I put £15,000 in it or something and lost the lot. Just ridiculous.
Did it go bust or?
Yeah, and it was just the usual total fiasco. It had an interesting cartoon animation and they’d done one series of it and it had been a big success, and then they moved onto a second series, but they never really made any money out of it. That’s golden rule, don’t invest in stocks that don’t make money. If you invest in loss making rubbish, that doesn’t really sell anything, you’re not going to make any money.
Sadly, so many people do invest their life savings in so much rubbish.
When you’re young and naïve you do that sort of stupid thing but hopefully once you’ve done it a few times you learn that this is not the way to make money on the stock market.
And if you don’t learn you go bust and then you have no money to make money on the stock market.
You soon disappear from the stage!
But that’s by far the worst for me, and I’ve made all the mistakes, I’ve averaged down on a piece of junk-
And the funny thing afterwards you had the JAG, which was the Just Action Group, which was a load of crazy shareholders who’d bet their houses on it.
It was terrible, and it was almost like a support group.
Yeah, a cult! For people who’d lost all their money in this stock and they couldn’t accept that they’d lost all their money. They were trying to pursue a million ways to get the money back, and the money was long gone, so they were never going to get it back!
I wonder what happened to those people in the end.
They’re probably still in the Just Action Group, mate. You shouldn’t ever fall in love with this one stock because it’s going to be amazing, because it won’t be.
There are so many companies on AIM that are going to change the world, and they’re once in a lifetime shares, but they never are. Well, they can be if you sell the spikes.
Yeah, graphene, all of these companies promise something big, but then when you look at the charts over ten years most of them have achieved nothing, and they’ve changed their story.
And they’re a cash shell by that stage!
Yeah, no business but they hope to do one! AIM is funny. You can make a lot of money on it and also lose a lot of money it, but generally I think if you invest in a company that’s small, it’s growing its profits-
Well, that’s the thing if it’s a real business, and it’s got real revenues, and real profits-
And real cash.
-then it can do well! But it is a minefield and this idea that you can just buy a few AIM stocks -it’s just so risky.
Of course it is. Especially when you think most never actually deliver any value at all. It’s not like roulette at the casino, it’s actually worse odds than roulette. So if you want to gamble, go to the casino because your money will last longer and you get better odds!
And you get a free drink too! To keep you there.
So, did you ever think of giving up?
No, funnily enough. That’s a great question actually because what happened with me was from 1999 to 2000 I put my money in, lost absolutely stacks of it, and we get down to 2003 and going through 2001 and 2002 I was starting to think “I’ve got no idea what I’m doing” – and I think that was the crossroads that you come to – you come to a fork in the road and you have a choice: do I give up on investing on the stock market, or do I actually learn what I’m doing?
Fortunately, I took the ‘learn what I’m doing route’, and then I started to seriously read books, trying to understand what was actually going on, and even now after twenty years I still have doubt on my side here. It’s one of those things you just continually keep learning, and the market always keeps coming up with new surprises for you.
I suppose that’s what’s so interesting about it, isn’t it? There’s always something new and every day is a school day. Plus, that decision to keep going was probably one of the best decisions of your life, I’d imagine!
Oh, no doubt.
Because think what you’d have been doing if you didn’t get involved in the stock market?
Well exactly, if I hadn’t, I would’ve had to cash out of everything. I mean I’ve got friends who moved into cash and everything, and many of them went into property – that was the thing to do, and some of them have done very well out of property. But it’s flipping hard work; it’s not easy money. Buying property and renting it out is not the goldmine everyone thinks it is.
Not anymore – it used to be.
It’s a lot of stress, a lot of grief, and the good thing about stocks is that they’re massively liquid, so I could literally sell everything well, now, and liquidity is massive in the stock market.
Its also good because you buy these companies and then they work for you, and a lot of people don’t realise that, do they? When we buy a stock, we don’t actually do anything, we just let the companies and the management work for us.
It’s the great art of capitalism, isn’t it? We just twiddle our thumbs while they do all the work, sounds good.
If only it was that easy!
Yeah, if only it was that easy. The reality is it’s a full-time job in itself managing it, so it’s not really like we give them our cash and then we do nothing, but it sounds good.
Well, that really is the essence of it though, isn’t it? If you’re picking decent companies then yes, they do work for you to make you richer, which is a lovely situation.
So, if you had to give three things that you wished you knew before you started in stocks, what would they be and why?
I think number one for me was valuation. I think one of the big advantages I have as an investor is that I have a fairly good handle on what valuation means and how to interpret valuation and how to understand it. I think that’s really important. When something is on a PE of 40 I know it’s probably highly overvalued, whereas a lot of people don’t even know what a PE of 40 means.
Most stocks on AIM don’t have PEs – they don’t make any money!
I wrote on my website a series of blogs around the subject of valuation, and include it in most blog posts I write on specific stocks.
I remember reading them, they were good. You can find Pete’s blogs on valuation here (there are links to the earlier parts at the bottom):
I think they really are the nub of it, and I think if you understand valuation to a large extent, it probably puts you in the top 15% of investors straight away. I think it’s that important.
The other thing I think is really important is that having a good understanding of charts, the technical side of it, and one of the difficulties of the charting side of things is that it’s hard to learn overnight. It’s one of these things where a lot of it is just experience and it’s figuring out what works and what doesn’t work, and getting yourself a set of chart patterns and indicators that can work together to give you a good idea of what the market is going to do.
Yes, I think charts are extremely useful, I couldn’t trade or invest without them.
Lots of people say they don’t use charts, I just find that incredible, I don’t really see how you can be much of a successful investor, never mind trader, if you don’t use charts – it just strikes me as nuts.
It’s weird, isn’t it? The ultimate goal of an investment is to make a return, and you get investors say I don’t use charts because I’m an investor and I’m buying the valuation. Well, that’s great, but if you can get a better entry, then why not? It might only be five percent, or even one or two, but compounded over time that could be a decent amount.
I understand that people just want to buy the stock, they’ve done the work and they want to buy it, that’s fair enough, but I do think people who don’t use charts are at a serious disadvantage.
That brings us onto the other thing, understanding the importance of patience. It’s like you mentioned it there, you’ve done your research and you want to buy the stock, but you’ve got to be patient and you’ve got to wait. Let the trade come to you, wait for the chart to tell you that this is the time to buy. So I think the power of patience and the importance of patience is massively underestimated. Things like letting your winners run, it’s one of the classic sayings, and I think the biggest mistake I’ve made all throughout my investing career is that I’ve sold things too early, that’s the number one biggest mistake.
Which stocks in particular?
People say you should cut your losers but I think the flipside of that run your winners is actually the most important thing.
If you have one massive, massive winner it pays for a lot of losers.
The one that gets me, my biggest error, is XPP, XP Power. I bought into XP Power at 6 or 7 pounds or something, and I sold it 8 or 9 pounds, and I thought “I’ve done well here, I’m a happy man”, and it went onto about 30 odd quid!
It got to around 38 quid!
I made 30 or 40 percent on it and thought I’d done really well.
Well, you did do really well, but you could’ve done better.
Well really, I did a very stupid thing because it was a great company that had really changed its strategy and its business model, and I picked up on that change. I realised that it had done that change, and that’s how I made my 40%, but then I didn’t have the sense to realise that this could be something that could continue. I think that’s just a really important point, and the way I get around that now is that rather than selling something like that, I’ll just top chop it.
That makes sense.
If I get a really strong urge to sell something then I just slice a quarter of my position off it, rather than selling it. I lower the risk, satisfy the itch, and I’m still in the stock.
It’s a good idea. It’s actually in the Art of Execution, in the book, the Connoisseur, take profits little and often. You take a little sip of the whiskey every now and again as it increases in value, which is good. And the thing you mentioned about patience, Conkers3 has been holding AstraZeneca [EPIC: AZN] since 1994, which is insane.
He’s made a massive amount on the capital, but he’s also made an enormous amount on the dividends that have continuously risen. That’s a great example of a company that is working for you, and he’s done nothing with that company since 1994, and just sat there and ignored it, and it’s just made all this money for him. The employees of AstraZeneca have worked their butt off for Conky.
He deserves it – he’s very good at what he does, and that’s patience well rewarded in my book! You mentioned earlier that you had some rules – you never make a buy or sell decision during market hours, are there any other rules?
There are things like the top slice, averaging down is something I do, but I would only buy once two criteria are satisfied really. I’ve got to be totally sure the fundamental situation has changed, and that normally means bringing in new management, a new CEO and a new FD then you can be pretty sure things are going to improve, so you’ve got to have the fundamental improvement and they’ve got to have a new strategy which seems plausible and is going to solve the problems.
The second part of that is you’ve got to have a chart that is now trending upwards. So they’ve had hard times and the stock price has been trending downwards, but you then want it to be turning into an uptrend, and then you can average down and buy more. That can work really brilliantly and I did that on Boohoo [BOO] – I did fantastic.
Didn’t you buy around 50p?
I bought it at 60p or something and it went right down to 15p or something ridiculous, and I bought more at 25p, I bought more at 30p and 40p, and then it went to £3 or something and I top chopped some. It’s dropped back now obviously but I still like Boohoo and I think it will do well. But it’s a great example of averaging down.
That’s good execution – a lot of people say you shouldn’t average down and I personally don’t think people should make it too much of a habit.
I think it depends what you’re buying and averaging down on. If you’re averaging down on utter crap…
Then you’re an idiot and you deserve to lose your money!
But if you’ve got a quality stock, something like AstraZeneca, and it has a particular problem, if you remember they had that Mystic trial recently that was a failure, and I think it fell 12% in a day – that was a great time to average down.
At the end of the day with AstraZeneca, even with the Mystic trial going wrong it was still going to be a bloody good company that pays you a dividend. If you’ve got investment trusts, and I’ve got investment trusts in, a health fund, it’s called Worldwide Healthcare WWH, with that one, when it’s dropping, and it goes into a downtrend, let it fall, and once it starts turning out of that downtrend and you can start to see it trend upwards again – that’s a good thing to average down on because it’s not going to go bust, because it’s a collection of companies. You’re investing in the health sector in effect, so you can be pretty sure it won’t go bust – well it won’t – and those things are good to average down on.
As long as the businesses in the health sector are doing OK, as long as the fundamentals are OK, and the chart is starting to move up again, then average down.
If you average down on the right company then it can be brilliant, but if you average down on the wrong company then it’s terrible. I think by having a chat we’ve actually managed to cover all of the topics.
I imagine we have, we seem to have danced through a lot of topics, which is good!
Thank you very much for your time Pete – I really appreciate it.
Pete has his own website here which is well worth a visit – there is an amazing wealth of knowledge for free which has been built up over several years.
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