In this Blog Series I am reviewing Robbie Burns, The Naked Trader’s, latest Book, ‘Trade like a Shark’. To try to bring this to life I have gone through the Book picking out some important chunks of Text and then giving my view of what it says and what makes it significant. If you want a copy of the Book you can find it in ‘Wheelie’s Bookshop’ and you can find Part 1 of the Blogs here:
Chapter 4 is about ‘Trading in Down Markets’ and Robbie particularly talks about Shorting Indexes as a Hedge:
‘The same is needed in trading. If you run it as a business you need to use all the tools at your disposal. And that should include shorting. When Shares tumble, selling up is very costly. Shorting allows you to hold onto your shares, waiting for the turnaround, while making money from the markets going down.’
You know I won’t be arguing with that !! The Book has quite a bit on this and of course it is worth bearing in mind that recently the FTSE100 has not been so useful as a Hedge due to how it moves with the gyrations of the Pound since Brexit and its uneven Weighting which gives the Top 10 Stocks considerable force over how the Index moves. Regular Readers will know that I talk about this sort of thing quite a bit in my Weekend Blogs.
Robbie covers Lee Freeman-Shor’s ‘Art of Execution’ Book and puts in some key points which are very useful. This bit is particularly good:
‘Lee has some interesting overall conclusions that can also hep traders become more like a Shark:
‘The Art of Execution’ can be found in ‘Wheelie’s Bookshop’ and I have a copy of it myself but it is part of a big stack of reading material for me to plough through, so I have no idea when I will eventually get around to devouring it !!
Robbie asked a Financial Analyst at Spreadex what he thought were Traits of successful Traders and these quotes stood out to me from a long list in the Book:
‘Knowing why you are buying or selling. Those investors who put the time and effort into carefully selecting their portfolio have the mental fortitude to know when and when not to stand by their decisions.’
Patience. Trading can require a steely-eyed resolve across the weeks and months, allowing a stock to right its upwards (or downwards) course amidst macro-inspired movements. Those looking for quick results, and even quicker profits may be left wanting; those, however that can withstand the pressure to interfere, those who have the mental strength to trust the decisions they have (hopefully) carefully made, are likely going to be the ones who end up with the biggest windfall.’
Again that bit chimes with my recent Patience Blogs and how ‘Less’ is often ‘More‘…….
Robbie then has loads of Chapters with each dedicated to a particular Emotion and how they affect us with examples. On the ‘Greed’ Chapter, there is this Quote at the start:
‘The more money we try to make and the quicker we try to make it, the less likely it is to happen.’
Robbie actually has that text in Bold so I have done the same. This is just such a genius yet simple point - try too hard and you will only fail - the essence of Greed.
‘The lure of the long shot.
The first form of greed is the lure of the long shot. One trade to change everything! It usually makes traders buy a tiny share in the hope it springs higher and makes them pots and pots of money.’
This is classic ‘WheelieBin’ stuff and I actually have another Draft Blog written on exactly this subject which will probably emerge in coming Weeks. I repeatedly say that the simplest change most Newbies and Unsuccessful Traders and Investors could make to turn their Performance around would be to stop buying Garbage AIM Stocks and to focus on Quality Shares.
Needless to say the Examples Robbie gives in this Chapter on Greed are terrifying !!
Robbie then addresses Leverage:
‘A shark would not dream of over-leveraging, and realises the market can be crazy. Tight discipline is needed and borrowing to trade is the road to the poorhouse.
A shark would maybe leverage a little bit - but only a small amount in proportion to his or her funds, and never anything the shark can’t afford to lose. You have to drum this boring phrase into the brain; Do not play with money you cannot afford to lose.’
Chapter 9 is about Fear - Robbie starts off with this:
‘We are scared we might end up with nothing. Or there will be a big war. Or terrorism will strike again. The fear of all these things is bigger than any reality.’
Think about that. This quote really hit me hard and I will try to remember that next time the Markets are Crashing and I am convinced it is proper full-on Armageddon….
An extremely important point Robbie makes is that our primitive Brains are hard-wired to massively over-exaggerate our Fears. He gives the simple examples that in the Year 2000 all the Computers were going to crash as we went into New Year and that during the Credit Crunch we were terrified that all Stocks were going to Zero Pence - looking back now it is easy to see how daft this was. The Fears over Brexit are pretty much the same and of course there are many vested Interests feeding this Fear.
This next bit chimes with me because the Planes fly over my Bungalow and I am still to be convinced that Metal actually floats in Air…
‘We’re scared of flying - but one plane has passed over where I live every minute for 50 years and not one has crashed on its way into Heathrow.’
And this Quote is really important for us Investors / Traders and wannabe Sharks:
‘Same with shares. When they are going down there is an insane fear they will fall go to zero. The risk of something we fear is usually pretty small.’
‘Fear leads to terrible losses - makes us sell at the wrong time, buy at the wrong time; sell because everyone else is selling, buy because everyone is buying. As Warren Buffett once said, the best time to buy is when everyone is fearful. Another investing legend, Sir John Templeton, liked to wait to buy a company until it hit the point of “maximum pessimism“. That’s the way to do it!’
Robbie then goes on to make the point that Fear can actually help you. He quotes a big chunk from a Reader who emailed him on the subject although the bit I have pulled out is on greed just to confuse you !! (note, one of the great aspects of this Book is that Robbie has weaved in lots of Real Life Stories from his Readers and Traders he knows etc. - that really makes the book very practical and most unlike the Academic Junk that is often peddled out in Books):
‘Likewise greed. Greed is my friend in that it gets me averaging up on really good shares. Ultimately that is how I made my decent money. But you kind of know when you’re overdoing it - it’s like having one chocolate bar too many and suddenly you can’t stand the sight of Kit Kats. That my cue to rein in.’
Chapter 11 is on ‘Stubbornness’ and this Quote chimes with me !!
Despite being told endlessly by me that nearly all traders who bet on the FTSE 100 and other indices going up or down lose over time (shorting for brief bear market periods is something else), Andy was determined that he was the one who could do it.’
I know exactly what Robbie is getting at. I have tried and tried with Index Trading and it is really very hard. I am better just being a lot more selective and only taking occasional Trades - at least now my system using Tight Stoplosses is limiting the damage I do to my own Portfolio !!
Robbie goes on in that Chapter to talk about his own Portfolio and how he uses Stoplosses and Runs Winners and all that. This bit is interesting as it gives an insight into how Robbie does things that I don’t think I have ever seen in his Books before:
‘If any of the big profits get to 100%, I’ll topslice some unemotionally. This also ensures one share doesn’t have a massively bigger weighting than any of the others (increasing risk unnecessarily).’
Chapter 13 is about ‘Regret’ and the ‘What Ifs?’ - Robbie has this to say on it and this is truly a gem - worth re-reading several times and making sure you take on board what it is saying and what the implications for you are:
‘Now that I have spare cash, I might try and buy Fever-Tree because I regret not buying it earlier - but any share is a different proposition when it’s a different price. (And even when it’s the same price but at a different time.) This could be the wrong time or the wrong price or both. It could be on a big high. I mustn’t just go back and buy it because the initial investment case was strong a while ago.’
Chapter 14 is on ‘Classic Dangers’ and silly phrases that Investors and Traders commonly use but which are probably misleading. It starts with this slightly funny bit but tinged with terror !!
‘Don’t think that Spock had it any easier. Space might be the final frontier; but it’s also the place where no one can hear you scream. The markets are similar. There’s no limit to the possibilities - there are fortunes to be made! But you can also end up getting your throat torn out by the retractable jaws of slime-covered, acid-blooded strangers (I think the technical term is hedge fund managers.)’
Star Trek meets Alien…….
I love this next Paragraph - this is exactly my Approach. If ever I get the itch to Sell something, then simply Top Chopping a bit is sufficient to get me to calm down and the Stock then can keep on making Money for me as I let the remaining Position run:
‘If you sell a company whenever it doubles you won’t get to enjoy a ‘ten bagger’. A shark way of looking at this is simply to topslice: sell 20% perhaps, bank a few gains, but leave the rest to roll on.’
Robbie nails it on this next bit. I myself made the stupid mistake of dismissing GBG because it was on a very high P/E - this is a great lesson in how it is worth paying up for Quality Growth sometimes:
‘If a company’s share price keeps rising it could simply be because profits are rising ! And that might keep going for years. An example from my own trading is GB Group (GBG). It’s gone from 25p to 250p over seven years. There were hundreds of times along the way that anyone might have said: “It’s only common sense that it can’t go higher.” They would have been wrong, and a lot poorer if they acted on it.’
I am very much a follower of the viewpoint that is embedded in this next paragraph - quite often if I can see the Value and it is clearly under-Priced then I will happily hold on for even Years if need be. I did this with Entertainment One ETO and had several Years of it doing nothing (I cannot tell when the value will come out - but I just know it will at some point) but eventually it has come good and I have made a lot of dosh on these. I think there is a huge danger in continually jumping from Stock to Stock because you get bored - all you are doing is making your Broker a Wealthy Chap or Chappess:
‘I understand why traders get tired of a share doing nothing very much. It ties up money which you could be using to make profits elsewhere. But then, you bought those shares for a reason and they may eventually start moving . And perhaps they have dividends in the meantime…..
So sitting tight can be the best thing.’
I would guess this next piece is controversial but I see exactly what Robbie is getting at and I think one of the big advantages of experience is that you relax more about your Stocks and you realise that to a big extent, Less is More. I am pretty sure than many people obsess about their Stocks too much and it does not help - this is all too much of a Short Term Mindset and such over-attention encourages you to Sell when you shouldn’t and to invent excuses for Selling. You MUST let your Winners run.
‘Theory: “The more closely you follow your investments, the more money you will make.”
Practice: “People who keep up with the news about their stocks earn lower returns than those who pay almost no attention.”
This might seem a strange one. But sharks know that if you follow every little move on your stock of choice, then chances are you will take too much action at the wrong time. Stay interested, sure, but you should also stay out of its face. Stick to your pre-determined stops rather than fretting.’
I don’t think I need to explain the next quote - suffice to say all Tips and mentions of any Stock ANYWHERE are simply a route to a new Idea and you must do thorough Research before committing your Dosh - NEVER just buy a Tip because some ‘Guru’ has said it is good:
‘Now, don’t get me wrong: I think some magazines, like Investors Chronicle and Shares, are great to read for ideas and news. But when it comes to some of the other publications out there and all those exciting tips you see around the place…….you have to stop and think. Why has a journo been slaving away on a mag for years and years on £35,000 a year when if they were really good they’d be sitting at home earning £100,000 or more from their own amazing tips?’
This next bit of text follows a similar theme and this is from one of Robbie’s Readers who sent him an email (this is a bit like Jeremy Corbyn in PMQs…. “I have a Question from Betty of Sweatyland…”):
“It was my first ever trade. A bloke at work said his wife heard about this share from someone and it was going to rocket. I bought blind and it went down. It then went down a load more and I still have it down 80%. The bloke at work has been keeping a very low profile since I bought in.”
I hope you enjoyed Part 2 and found the Quotes interesting. My intention is to issue Part 3 next Week. Something that just struck me that I had intended to mention in these Blogs but I don’t think I have yet, is how when I read Books like this by Robbie I feel like I am getting a Pep Talk - it is very inspiring to read stuff that is so practical and relevant.
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