Stage 2 – 2004 to 2008 – The Calm before the Credit Crunch
Starting to get a rough idea about what was going on. Discovered Value Investing. First Leveraged Trades.
Markets were a lot more favourable and had a good run from the 2003 Lows to the 2008 pre-Credit Crunch Peaks – so this was a pleasant and ‘wind-assisted’ time to really get my learning going in the right direction and to make some Money back on the way !!
The Diversification across my Portfolio helped hugely – I was a ‘Bunny in the Xenon Headlights’ for much of my early Years but as a result sticking with many good Stocks and Funds through the worst actually started to pay off as the Markets recovered – despite all my worries, holding on was the right thing to do and I am so pleased I did not get scared out of the Markets as I have many Friends who got burnt at this time and have never had the courage to go back into the Markets since that. It is probably after these early experiences and most definitely from the Credit Crunch itself that I get my adoration of Diversification as a Life-Saver and I see this as vital and unavoidable Risk Management. I am convinced that many People who run Focused Portfolios with maybe just 10 Stocks or so will be changing this once they have endured the pain of a full-on Bear Market and felt some proper Fear – the times it saves my backside are innumerable. There are far too many ‘Fair Weather Portfolios’ kicking around.
Very much followed the ‘Value Investor’ route and this is still a major part of my make-up, although I don‘t really mean this in the Benjamin Graham ‘Discount to Book Value’ sense – what I mean is that I am obsessed by Valuations but I apply this for Growth Stocks as well and am a lover of the PEG Ratio (Price/Earnings Ratio divided by the Growth Rate). I also continued my fascination with Charting and Technical Analysis and started subscribing to David Linton’s ‘TipsTracker’ website which was extremely expensive (something like £250 a year) but in the few years I did use it I think I learnt a lot of useful stuff – I certainly don’t regret it and still think David is a very talented Chartist – one of the best. However, at this stage I don’t really think I had properly ‘married’ the Fundamental and Technical concepts into a coherent whole – if anything I was pursuing Value Investing for my Long Term Share Buys and I was using Technical Analysis for occasional dabbles into Short Term Trading using Spreadbets and CFDs (Contracts for Difference – bit like a Spreadbet – a way of using Leverage to get more exposure to Shares for less money up front). These days I am totally clear that I use Fundamental Analysis to chose my Stocks and I use Technical Analysis to help with the timing of Trades I do with regards to these chosen Stocks.
I think early in this Period, around 2004, I started subscribing to ShareScope and using it as part of my daily routine. A lot of what I was doing was experimental and I was continually mucking around with various different Technical things like Stochastic Oscillators and Fibonacci and stuff – most of it is pretty useless I find !! Again this harks back to what I wrote a few sentences back about how I was messing about with all these things but I had not really married my Fundamental Investing and my Technical Analysis obsessions into an effective, cohesive and useful overall Approach. I regularly have discussions along these lines with very experienced Investors/Traders and my strongest recommendation is to grab some paper and write down a definition of what your Approach and/or ‘System’ is – getting clarity like this is essential I think. You can then focus on tweaking this over time and doing the whole ‘Kaizen’ Continuous Improvement thing.
I used to listen to Bloomberg religiously every morning for at least 2 hours. I am not sure how useful this was and it was flippin’ terrifying during the Credit Crunch Collapse !! However, it was probably yet more bricks in the construction of my Knowledge of Markets and Investing. I now rarely do this although I must admit to the odd indulgence with CNBC to watch Jim Cramer cos he does make me laugh !!
Starting to get a lot more realistic and figuring out what types of Stocks worked well for me and which ones I tended to lose on. It was a long slow process though – I am a slow learner !! Thinking back over this now it amazes me how slow I was at really figuring out what I was good at and what I tended to fail on. I guess it was probably all the other demands in my life and things are very different for me these days where I have a lovely peaceful ‘Retirement’ with very few distractions and plenty of time to think about how I do things and the luxury of being able to pretty much focus 100% on my Investing and not have the demands of a Full Time Job to suck my time and brainpower. It is pretty clear from reading this Paragraph though that had I put more effort into defining and codifying an Approach I would probably have done a lot better with my Returns over the years.
Still no clear direction. Lots of experimenting with Short Term Trading and stuff. Goes back to what I was saying in the Bullet Point above that I lacked a Defined Approach and I was flailing around to a large extent (I guess there was an element of ‘Searching for the Holy Grail‘ where I was trying to find the perfect tool or technique that would help me make £millions – of course this is a fantasy). Clearly it is easy to say this with Hindsight but it is so obvious that I wasted a lot of time over these Years through not being more Disciplined and having a clear Definition of how I did things. I guess with the joys of a nice Monthly Wage there was very little pressure on me to really improve my Trading in a big way and I could quite happily plod along taking things as they came and to a large extent perhaps not really taking my Investing seriously (I have always been very tight with my Spending and consequently I used to save a huge chunk of my Salary every year). It was most definitely a Hobby rather than a Career Choice like it is for me these days. To be fair to myself, this was clearly not easy when I was working hard on a demanding and sometimes tiring Job – writing statements like that makes me realise just how much I made the right decision by deciding to escape the Rat Race when I did !!
I Subscribed to ‘Money Week’ magazine during much of this period but apart from the odd bits I really liked, I found it was just simply too Bearish in most of its slant and this was actually unhelpful. The simple reality is that over a long period of time Stockmarkets tend to rise – so the best ‘default Outlook’ is one of ‘Cautious Optimism’ and the Stockmarket is no place for negative ‘Glass half empty’ pessimistic types (put your money in the Bank if this is your demeanour). I did discover Bengt Saeleseminde who used to write a thing called ’The Daily Reckoning’ (but I am not sure if he does it these days) through Money Week though and he was very good. It was one of his ideas to buy Ebay Shares and I did this not long after his suggestion and that ultimately span out PayPal PYPL which I still hold to this day and has been a huge Winner for me !! (thanks Bengt).
I also subscribed to ‘Red Hot Penny Shares’ – it was an interesting read but to be honest too much AIM Trash was tipped – I get the impression that some Newsletters like ‘Sharewatch’ and ’The Momentum Investor’ are a lot better. I used to see copies of ‘Fleet Street Letter’ when it was edited by William Rees-Mogg (Jacob’s old man) and that was very good and helped my Value Investing education. These Days I use no Tipping Services of this type and am much more driven by the Companies I read about when looking at RNS Statements first thing every day.
At some point I switched away from Shares Magazine and back to Investors Chronicle – I’m not really sure when this happened but I suspect it was during this Period and might well have been near the start. I say “back” because I have a feeling that in my early years of Investing I subscribed to Investors Chronicle but I probably found it too dull back then and wanted ‘excitement’ (Fatal – the last thing you want as an Investor or Trader is excitement – it should be boring and dull as hell !!. This is not Online Poker or a FOB-T and regular pleasurable hits of dopamine in your Brain are not helping). At some point I decided that Shares Magazine at that time was a bit of a comic and was too obsessed by tiny Mining Stocks and all the usual rubbish that the unwary throw their Money away on. Investors Chronicle is for Adults. Having said that, Shares Magazine under the current Regime is actually very good and has a much wider scope of Stocks it talks about.
Stage 3 – 2009 to 2010 – The Credit Crunch
Important Lessons in the Merciless side of the Markets and the usefulness of Shorting.
The Credit Crunch was horrific – no sense it was coming and the damage was catastrophic – it was an extremely scary time and very worrying – the last 10 years since have been an utter picnic when compared to this. Thankfully these kinds of events are extremely rare – 1929, 1984, 2008 – but perversely I would like to experience another one just to see if I learnt anything of use !!! (the Recovery was amazing though and hopefully after the next one I will know exactly what to do in order to make a mint out of it). I cannot stress too much just how awful it was – Valuations meant nothing and everything fell and it would be by huge Daily Drops and there would be no let up. It was extremely scary and I remember having what appear now to be very silly and emotional thoughts like “Oh my lord, all Stocks are going to be entirely worthless !!” and it was this kind of thing that pushed me towards Shorting to try and offset the pain I was taking on my Long Portfolio of Stocks. I remember how I used to look at my Stocks during the day and swear with extreme rudeness at the Screen – I just could not get my head around the concept that my Stocks could fall by so much so fast (and they did his day after day with no let up).
This was obviously a very tough Period with the Bears in full force and doing more damage than at almost any time in history. I had already started playing around with CFDs (Contracts for Difference) and Spreadbets but I really had little clue what I was doing and it was very experimental – at that point I had not figured out that a Portfolio of Spreadbets is the way to go and I would just have had a handful of Bets running at any one time. One thing I did get right, probably by accident, was that I shorted some Indexes and the Banking Sector and the Retail Sector with City Index and these did really well. I also shorted some Banks directly with mixed success but the one that sticks in my mind was that I had a Short on Halifax Bank of Scotland HBOS. On the morning that Robert Peston announced on the BBC that they were about to go bust but the Government would bail them out, the Shares fell like a stone but then rebounded like a Rocket – so I went from a huge Profit to a small Loss in about 10 minutes !! Trouble was I was on the Shower or something and I had Bloomberg or CNBC TV blaring in the background and I could hear what was going on but I was powerless to get to my Computer and do something about closing the Position – arghhhh (it cost me several £thousand so I was not a happy bunny !!). Experience of the Credit Crunch no doubt helped to fuel my obsession with Shorting as a means to Hedge my normal Long Portfolio of Stocks and to lower Market Risk in this way.
My memory is a bit faded but I recall moving into Cash a fair bit although I don’t think I bought anywhere near as aggressively as I should have done once the Markets were bouncing back – to be fair to myself, I probably didn’t have the experience to be able to do this back then – although I hope that if such an extreme Event occurred again I would be a lot braver near the Bottom and of course I would be far more likely to do Long Spreadbets this time (I could of course be entirely fooling myself as it is extremely difficult to predict how we will feel at a point in the future with an unknowable set of circumstances !!).
Diversification an enormous help in the Credit Crunch – especially my ‘Core Holding’ Prudential With-Profits Fund which was barely hit and recovered very fast after the dust had settled (there were Market Value Adjustments MVA to apply but once you have held 7 Years they do not apply to you). Of course I had a reasonably well paid job at this time and that was another source of diversification (Human Capital). No doubt ‘Work’ did get in the way of my Investing though but maybe that was a good thing because without the distractions of work I might have had nothing else to think about than the horrific battering my Portfolio was taking – everything is about perspective after all…..
I had a habit of Selling Stocks much too early and failing to really run my Winners like I should have done – no doubt around this period and probably on the Bounce-back. It has been a Big Thing for me in recent years to get better at holding on to my Quality Stocks that are still reasonably Valued and not being shaken out or scared out by all the Market Noise (Fundamental and Charting Noise). I suspect this problem of selling far too early dogged my Investing for years and years – it probably is only in the last 2 or 3 years that the Penny has dropped and I realise how daft I was. This is also fuelled by a Human urge to always be doing something – this leads to over-trading and can be very damaging to our Returns, as well as being a lot of unnecessary hard work. I have now realised this and rather than feeling a need to Trade all the time I am very good now at focusing on Research and doing other things which keep me away from my Trading Accounts and doing stupid things (I think the psychologist David Eagleman would call this a ‘Ulysses contract’.)
If I have this about right, I had a lot of Job Role changes around this Period and in the years leading up to this time. I was still with Fujitsu but with such large Organisations it is common to move around a fair bit and it is often like going to work for a completely new Company when you move to a different Division. During this Period I was a Proposal Editor working on Major Bids to mainly Private Sector Businesses but occasionally I would end up working in the Government Sector Division and helping them with their Bids – it was strange work and I suspect similar to being in a War Zone – long periods of not much going on interspersed by Shorter Periods of utter Terror and Panic and getting pretty tired with late night working (and of course as with all huge organisations, there was more ’Blue on Blue’ and ’Friendly Fire’ from the Management in Fujitsu than from the Customers who were more our Allies !!). It was very much Project work and there were Weeks when it was utter chaos with lots of Bids being juggled but then there would be periods of perhaps a couple of Weeks where there was not actually much going on and this was useful for me to give my Stocks more attention. One big benefit from this work was that I had exposure to lots of different Industrial Sectors and it probably helped improve my knowledge and understanding of them and it meant I had experience of submitting Bids to many of the Listed Companies that I invest in today.
The upside was that it gave me more time to work on Stocks in the downtime but the downside was that there were often times when I didn’t even look at my Portfolio all day and it was a necessity of this kind of work that my Approach started to get refined whereby I had to create a way to work with the Markets which required not that much attention and it taught me to be comfortable with ignoring things for long periods of time. I didn‘t formally define such an Approach but it just sort of happened through necessity over time and I would guess many People get their own Approach in a similar way. It also made me not too much of a ‘Screen watcher’ intraday – I rarely had time to look even at ADVFN or whatever and I was very much running my Portfolio on an End of Day Close basis – often not looking at my Portfolio until 8pm at night or so (and of course back then Smartfones were only just appearing). My memory is hazy but I think my method of reading RNS statements and stuff was very lax and quite often the RNS News would take me entirely by surprise. I don’t blame myself, it was forced on me by the constraints of Life and I suspect many Readers are now nodding their Heads in agreement / empathy of the limitations that Work, Family, Health, etc. can place on our Investing.
I think around this time I was starting to formulate my System of ‘Mirroring’ my Share Positions as Spreadbets and I distinctly remember being at a very quiet Master Investor Conference in Islington so it was probably 2009 or something (it was very quiet because nobody was interested in Stocks after the collapse of the Credit Crunch and this in fact turned out to be a brilliant Buy Indicator – just as how when you go to a Show and it is really busy, this signals the Top of the Market), and discussing my ‘New Brilliant Spreadbetting Idea’ with friends who looked at me like I was utterly mental (I am, but that’s another story).
During this time I was still very ‘Tips driven’ in that I would often buy things that had been ‘tipped’ by Investors Chronicle or T1PS or by Robbie Burns or The Fleet Street Letter, Money Week or whatever – I was getting better at weeding out the crappy Tips but I was still very much being led by others although I probably didn’t realise that at the time. I guess with all the pressures of Work and stuff time was just simply very limited and I sort of take for granted my current ‘Retirement’ Life where I have copious amounts of time in comparison (although it seems to me constantly that I never have any time to do anything !!).
I don’t remember having much ‘formal’ learning although at one point in time, perhaps before this Period, I attended a 2 Day Course given by Darren Winters which was actually a bit of a joke. It is a long story but a mate got me Free Tickets for both days and the thing that hit me was that here was this Guy ‘teaching’ thousands of People at this huge Conference thing and yet I actually knew more than he did !!! I guess it was starting to dawn on me that I knew a whole lot more than I realised and all the book reading, magazine reading, chatting to mates, Financial TV watching and stuff over the years was sort of teaching me by osmosis – I was just soaking it all up although because my life was so busy perhaps I wasn’t able to structure my Thoughts and created a Cohesive ‘System’.
I had bought a little 10 inch Asus Netbook and during this time I used to get up in the Morning before I headed off to work and would use the Netbook to read RNS Updates and stuff. Believe it or not this is the ‘PC’ I still use today – it has been utterly brilliant. It must be 10 years old now and runs XP but it still delivers and although I know I should splash out on a new Laptop, I am loathe to do it because I find the thought of learning a new Operating System and all the hassle of choosing a new Laptop utterly off-putting (I have visited PC World a few times and just got more and more confused with the vast choice of Machines on offer !!). Anyway, I used to muck about with this Netbook before going in to work and I listened to CNBC and/or Bloomberg for a couple of Hours whilst showering and getting dressed etc. (being Paraplegic it can take at least 30 minutes to do these daily tasks). I am not sure when I stopped doing this but at some point (probably after I left work) I decided that it was distracting and I rarely watch or listen to it now – although I always watch Bloomberg TV for 10 minutes at Midnight just to see what the Asian Markets are doing and for a summary on the US trading of the day. Despite the ‘Noise’ of CNBC etc., I probably soaked up a lot of Learning from these Years of addiction.
That’s it for Part 2 – I have Parts 3 and 4 in Draft form but they need quite a bit of work.
Visit WD Website HERE
Follow him on Twitter @wheeliedealer
All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned