Invest Like a Shark - Part 3 of 3
Even if you have very blunt Eyes, you should have noticed that this is Part 3 of a Blog Series and if you would like to read the other 2 Parts first (which of course is what I would suggest you do !!), then you can find them at these links:
Chapter 15 is ‘Digital Dangers’ and goes on about the problems that easy access to Trading Platforms and Bulletin Boards and Social Media etc. can create for you. The message is to understand the drawbacks of such Tools (they can have benefits but these are easily swamped by the downsides) and to be fully in control and not let them take your life over etc. Above all when using any Online Platform it is vital to avoid ‘Noise’ and to be very disciplined about what you are reading and exposing yourself to - it is far too easy to get influenced by stuff that you really should not be reading anyway, and of course you can waste immense amounts of time which you could be using in far more effective ways. Stay disciplined and ‘Cut out the Noise’.
This next quote is bang on the money and Beginners in particular should take note:
‘Sharks know that flashy, whizzy, sexy things like trading your way to millions through Forex are a load of nonsense. Faced with the digital danger of all the enticing ads and systems and sponsored content out there, they resolve never to trade:
Sharks, instead are happy to embrace:
Regular WD Readers know I detest Screen-watching (I have better uses for the Marginally more Valuable Days I have remaining on this Planet !!):
‘Sharks understand that being attached to a screen of any kind all day is a bad move. You are almost doomed to fail to achieve shark status. Instead of decluttering the mind you add even more clutter.’
This next bit totally chimes with the idea of downtime and getting away from it all and having a break during the Day. I know what he means about Fones being a pain sometimes and I will often go and do something and leave my Fone indoors so it cannot distract me. I rarely look at my Fone when I am out with Friends - even Investing Mates. I want to see them and chat etc., not to keep staring at my Fone Screen and having loads of other conversations. It is vital to take time out.
I had to laugh at Robbie talking about the Landline - you can ring mine, but I wouldn’t bother because I always have it unplugged !!
‘Let me tell you a secret: I don’t even own a mobile phone. I don’t need an app or whatever to trade or do anything. I want to rest my mind and reboot whenever I can, not spend more time on a screen. If you want to contact me, ring the landline and I’ll call you back when I’m ready….’
I barely need to introduce this next bit. Total madness:
‘One chap called Brian had lost a lot of money by getting tips from people on Twitter. He had become totally consumed by financial Twitter feeds, He’d spend all day on Twitter looking at what other people were dong and trying to copy them. It was the same with bulletin boards - he found himself trading like crazy trying to keep up.’
That is not to say that you cannot get excellent Investing/Trading Ideas via Twitter and I regularly do just that. But the simple rule must always be that whenever you trip over a Stock that looks potentially interesting, this is just an Idea and you must go through the usual proper Investigations and Research to make sure it is something worth putting your Money into. Don’t buy anything just because some amazing Bloke (or Blokess)on Twitter bought it.
This bit is classic ‘Cut out the Noise’ !!
‘I have heard from a number of people who find it hard to concentrate on trading, not only from social media but also from email overload. Emails can bombard people and lead to stress and feeling overwhelmed. Another reason why the latest technology going off in your pocket every ten seconds may not be a great idea for a trader.’
I don’t agree 100% with what Robbie says here but the principle he is putting forward is sound - what I would emphasise is how it is vital to be in control of Social Media and Email etc. - don’t let it control you. Set a time period every day where you will look at these things - but don’t get sucked into them and end up wasting valuable time and getting exposed to very unhelpful Noise:
‘Unless obviously essential for your work, do not look at emails or social media between the hours of 8am-4.30pm (while the UK market is open). At 4.30pm relax, have a cup of tea, put some distance between yourself and the market - and at 5pm look at emails and social media (if you want to).’
I can’t argue with this bit though:
‘Sharks make their own decisions. They don’t need to know what everyone else is up to.’
This next piece of wisdom is with regard to the use of Spreadbetting - as Robbie says, it can be extremely dangerous if you do not understand what you are doing (if you click on the Blog Category ‘Spreadbetting’ then you should be able to find a detailed Blog Series I did on the subject and the most important thing to understand is your level of Exposure at any point in time):
‘A trading shark knows the big advantages of spread betting. As mentioned in passing elsewhere in the book, it’s a great tool, especially as you can make money when the market is doing down. But in the wrong hands it can be a total disaster. People ask me why not just spread bet instead of trading in an ISA or other broker account? The answer is because you would need the ultimate brain to avoid destroying yourself.
Spread betting is a great tool but should only be used alongside trading in a normal self-select ISA.’
Chapter 16 is titled ‘Technical Gibberish and Jargon’ and is primarily concerned with the use of Charting stuff. I get what Robbie is saying and understand that Charts can give yet more ‘Noise’ but personally I find a repeated and robotic application of basic Charting concepts very useful and they enable me to ‘read’ the Markets. Here is Robbie’s view:
‘Trying to use charts alone doesn’t work. Only one aspect of a share - price movement - is looked at. However, non-Sharks love it. They think they are being unemotional, cool and calculating. But they are simply looking at one part of the story. If a trade is a jigsaw puzzle they have a lot of pieces missing.’
Robbie then gives this example which is indicative of the many Examples which you will find in the Book from Robbie’s Readers who have sent him emails on their experiences. This is totally how I see things - I use Fundamentals to select what Stocks I buy and I use the Charts to help me to time the Buying and Selling etc.:
‘Here’s Phil who thought it was the answer:
“I used to only use charts for everything and filled them with moving averages, MACD, Stochastics etc. You name it and I had it! I even moved to Ichimoko charts as they had more colours. I ended up losing on virtually every trade I placed. Now I just look at charts to see an up or down trend - the only other thing is to try and see support and resistance levels.”
In the end, thank Spock, Phil saw that charts on their own don’t cut it. There is no problem at all in having a look at them as part of an overall picture. Sharks and Vulcans do. It’s just that they know you can’t use one aspect of anything to make a proper business decision.’
I think this next bit is something that is largely overlooked by many People - it is so vital to get away from our Screens and to take regular Breaks from our Trading/Investing stuff. Robbie also gives away his Choccie addiction as well !!
‘The more cluttered we are, the less likely we are to be clear-headed when it comes to making a trade. It’s true of ordinary days as much as volatile days - though the latter can certainly be worse.
Something you should therefore do most days as a trader is declutter. Take a timeout. (Dip it in a cup of tea. Beautiful!).
The idea is to switch off your brain for a bit. Just like you need to switch off your computer when it has been running lots of programs for ages.’
He then includes this Quote in the Book from Brett Steenbarger (whoever he is !!):
“Fatigue and mental overload create a loss of concentration - the demands of watching the screen hour after hour make it difficult to be sharp, creating fatigue effects that are well-known to pilots, car drivers, and soldiers.”
That text is so important. I have long been a believer in the approach of working at something for perhaps an hour at the most and then taking a long break away from it and doing something completely different. This was how I worked at University and I found that doing perhaps 4 or 5 hours of Study-type work each day but interspersed by loads of long breaks meant that I was working in a really effective and ‘switched on’ manner. I continue to do my ‘work’ stuff in this way. It also has the benefit of keeping me interested - if I was to strive at some ‘work’ type thing for 3 solid hours or something it would really get on my tits - it is so much more enjoyable (and therefore you learn and retain more !!) to work in chunks of time.
This next bit I found very surprising and I have never seen this before. It trots out the usual line that Girls make the best Traders/Investors but then there is a twist cos according to Robbie us Blokes are not completely useless !!
‘Women traders tell me they just can’t cope with the thought of something running into a big loss. Generally if I’m in a room of traders and ask “Who is holding a trade with a loss of more than 25%?” you can guarantee most of the men put their hands up. The women? Rarely.
However - and here is where I can stick up for the blokes - men do tend to be better at letting profits run than women. Men seem to enjoy the delayed gratification of waiting for the profits to build.’
This next bit is totally in line with my thoughts on what kind of Returns you should realistically expect per Year. The Danger arises because if you set a Target for yourself which is too high then it can lead to Risky behaviour like Trading too often, holding too few Positions, Buying High Risk Stocks, not letting Profits build, etc. I myself target 10% a Year Return and I find that works pretty well with my Lifestyle and requirements for dosh without leading to dangerous behaviours. I have no doubt that there is a trade-off between chasing higher Returns and the level of Risk you take - for myself it is extremely important to keep my Risk on the lower end of the spectrum because the last thing I would want to do is to have to go out and get a Job. If you are in a suitable Job and you are young and fit enough to be able to work, then of course you can take a higher Risk with your Stocks as you can always make up for Losses from your Job Income.
There is also a trade-off with regards to Return vs. Activity - if you want to make higher Returns then you will need to be more active and ‘on the ball’ with more of a Trader mindset. If you do a demanding Full Time Job etc., then this might not suit you at all. For myself I have lots of other things going on with my Life (both good and bad !!!) and I want to be able to pursue my Stockmarket activities in a very relaxed and passive manner:
‘Decent traders can expect to make 20-25% on their capital per year. Given that the market won’t make that as a whole most years, it’s a pretty big profit. Some would even say it’s ambitious and 10% may be more realistic. Did you know that if you make 7.2% a year and let it compound you will double your money every ten years? So there are plenty of acceptable targets anywhere between 10-25%.
Don’t get carried away wanting more.
You must stay realistic. There is no problem at all with trading with smaller amounts and nothing wrong with starting to trade with £5,000 or so. But don’t expect to give up the day job anytime soon. Congratulate yourself with grains of 10-25% on whatever sum you have available.’
This bit is interesting because it is not something I follow Robbie’s approach on. Regular Readers will know my angst and constant battles with the use of Stoplosses and I actually much prefer to use Averaging Down instead. However, let me be clear about how I do this - I NEVER Average Down when a Company still has problems and when the Chart is still in a Major Downtrend. My Approach (assuming it is a Stock I still want to hold for the Long Term - sometimes I decide to just ditch it anyway), is to closely track the News that the Company is putting out and once I can see that things are getting better within the Business, and the Chart is starting to show Signs of turning up, then I will Buy more if I am confident enough and the Value Case still stacks up. If I am still not sure then I will wait a bit - it doesn’t matter, I am still in the Game whatever happens. The best Signal I find is when the previous Management get kicked out and New Management, particularly the CEO and CFO if possible, are brought in. This usually triggers a big Price rise and normally it is a great time to buy because the Stock is really beat up. Most of my really big Winners comes from exactly this approach:
‘Another weakness of mine used to be averaging down - buying more of a losing share in my portfolio. I have definitely cracked that for good though! It doesn’t matter how tempted I get, I never do it.
How did I crack it? By incorporating stop-losses into all my trading plans. I am out of a bad trade before it goes down enough for me to ever think about averaging down.’
This is a sort of Summary Quote from the back end of the Book - for me my key fault is probably not using Stoplosses but I limit the impact of this by holding a lot of Positions and not letting any one Position become too big a part of my Portfolio - I have a limit of 8% in any one Stock and I use ‘TopChops’ to make sure nothing grows too over sized with regards to its choppiness and Risk:
‘If there is one message from this book it is: know your own faults and take appropriate steps to limit the impact on your trading. For some that might mean not trading at all, or not trading for some time, for most of us it means taking less drastic but not less definite measures.’
I hope you enjoyed Part 3 and the earlier bits and this has given you a good taste of what Robbie’s ‘Trade like a Shark’ is like and is all about, and it should give you a flavour of why I was so impressed by it. If you want to get a copy you can get the Paperback version by clicking this Link:
And if you have not read Robbie’s ‘The Naked Trader’, you can find a copy here:
Kindle versions of both Books can be found via Links on 'Wheelie's Bookshop' page (I tried to put them in here but my Browser keeps crashing - sorry !!)
Remember, I take a small cut from this for pointing you in Amazon’s direction and of course Wheelie’s Beer Fund always requires a good top-up. Robbie as the Author obviously must get a few Pennies as well (but we can‘t begrudge him that because he did write the blessed thing).
27/7/2018 02:02:40 pm
Lots of valuable info as ever. ''Decent traders can make 20-25% '' Not sure about that. Think the list that did that every year would be minute especially with larger holdings. Stop losses - got stopped out too often with a share that then regained 20% in a day.
27/7/2018 11:38:06 pm
Hi paul, thanks for the comments. I think we agree on those points - as you say I can't see many People achieving 20-25% year in, year out - perhaps for odd years this can happen but even the Genius of Warren Buffett probably achieves lower than this (but of course he has a huge size problem which is bound to make things even tougher). Sounds like you have the same frustration as me on Stoplosses - I see the sense of them but in practice I just find them annoying.
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