Zak Mir discusses market outlook with Clem Chambers

Investing Against the Herd: Ocado, SpaceX, Spread Betting and Building Your Own Edge

Zak Mir talks to Clem Chambers from aNewFN.com about SpaceX, Ocado, spread betting, demo accounts, the herd, sheep, and the Investors Chronicle.

Most people are hardwired to lose money in markets. That is not an insult. It is simply what happens when normal human instincts meet an environment designed to exploit them.

We like things more after they have gone up. We become convinced something is hopeless after it has gone down. We want reassurance from a crowd, a broker note, a chat group, a headline or a familiar financial publication. Then we trade too often, pay costs, follow the herd and wonder why the results are disappointing.

The useful skill is not finding somebody with a hot tip. It is building your own narrative, testing it properly and sizing positions so you can actually live with the outcome.

Table of Contents

• Why investing gets less stressful over time
• The market is noisy, so your edge will be small
• Do not borrow somebody else’s narrative
• Ocado: look past the obvious label
• Contrarian investing: lush grass, wolves included
• Use data to generate ideas, not to outsource judgement
• Paper trading is a valid test, with one major limitation
• Spread betting: attractive tax treatment, serious risks
• The public is usually late
• The FTSE 100 may be unfashionable, but that is the point
• Herd behaviour is not theory, it is visible every day
• SpaceX and the danger of IPO pandemonium
• Build an investment process you can repeat

Why investing gets less stressful over time

As a portfolio grows, the numbers become emotionally different. At first, buying a share may feel like spending money on a nice meal. Later, a position can be worth a car. Eventually, it can begin to resemble a house deposit.

That adjustment can make anyone nervous. Even with 35 or 40 positions, a diversified portfolio can feel very concentrated once the amounts involved become meaningful.

The only real answer is gradual adaptation. Over time, investors become accustomed to the size they are operating at. If that does not happen, the position size is too large and needs to come down.

Your sleeping point matters. If a position is large enough to make you panic at every market move, it is too large, regardless of how compelling the original idea may be.

Markets can be volatile, and a bad month does not necessarily mean a broken strategy. But neither should anyone risk financial destruction trying to make a fast return. Good investing should be sustainable enough to repeat for years.

The market is noisy, so your edge will be small

Most short-term market activity is largely random. Buying simply because a price falls and selling because it rises is not automatically clever. Equally, buying because a price rises and selling because it falls is not automatically stupid. Without a genuine edge, either approach is roughly a coin toss.

The broad long-term upward tendency in markets is only a small skew across a huge amount of daily noise. That is why slogans such as “the trend is your friend” can be unhelpful when applied blindly. Trends can reverse violently, and a late entry can be just as dangerous as a contrarian one.

The objective is to identify a small, repeatable advantage, then back it sensibly. That may be based on valuation, market structure, relative performance, sentiment, an industry cycle or a business insight that the market has not fully priced in.

It does not need to be a spectacular insight. A modest edge, applied with discipline over decades, can produce extraordinary results through compounding.

The power of a sensible long-term return

A return of 25% a year sounds impressive but not impossible in the abstract. The compounding, however, is where it becomes serious:

• 25% annually can turn capital into roughly 10 times its original value over 10 years.
• Over 20 years, it can approach 100 times.
• Over 30 years, it can approach 1,000 times.

This is the real model: stay alive, stay solvent and keep making reasonable decisions. There is no need to swing for the fences every week.

Do not borrow somebody else’s narrative

A busy WhatsApp group full of experienced City people can be useful for research. It can contain broker notes, quick reactions to company results, market colour and people who have spent decades following shares.

It can also be dangerous.

There is a world of difference between using other people’s observations as raw material and copying their trades. The first can improve your research. The second can leave you holding a position you do not understand, with no framework for deciding whether to hold, buy more or sell.

Many successful investors have been lone wolves for a reason. Nicolas Darvas, for example, reportedly struggled after becoming immersed in Wall Street opinion, despite having previously built success through an independent approach.

The crowd can be right, but it does not give you an edge merely because it is large or confident. The crowd is often operating around the same 50/50 probability as everybody else, except it is also paying trading costs and amplifying emotion.

Listen to someone’s thinking, not their tip. A useful question is not, “Should I buy this share?” It is, “What is the underlying reasoning, and can I apply that reasoning elsewhere?”

Ocado: look past the obvious label

Ocado is a good example of how a different narrative can change the way a company is viewed.

On the surface, it can be dismissed as an online grocer or a business that picks items from supermarket shelves. That framing makes it easy to compare the company with the difficult economics of food retailing.

But there is another way to see it. Ocado can be understood as a robotics and warehouse automation operating system business. It can approach a supermarket and effectively say: you do not need to become experts in robots, automated fulfilment, packing or warehouse logistics. The system can be built and operated for you.

That is a very different proposition from simply selling groceries online.

The important lesson is not that everybody should buy Ocado. The point is to ask what a business really is, where it could be in 10 years and whether the market is pricing it as the wrong type of company.

When a share falls sharply, many people either panic out at the bottom or take the first opportunity to escape when it returns to a small profit. Staying with an idea from a deeply unpopular price to a much higher one requires conviction, and conviction requires a thesis that goes beyond the daily chart.

Contrarian investing: lush grass, wolves included

Being away from the herd has obvious attractions. If everyone is crowding into the same popular trade, the grass is short, overgrazed and smells rather unpleasant.

Move away from the herd and the grass can be lush. The problem is that there may be wolves.

Contrarian investing is not about buying every company that has fallen. It is about understanding why it has fallen, whether the problem is temporary or terminal, and whether the crowd has overshot on the downside.

ASOS at a deeply depressed price is the sort of situation that attracts contrarian attention. When nearly every reaction is that the company is doomed and nobody would touch it with a barge pole, that sentiment itself is information. It does not guarantee a recovery, but it may signal that expectations have become extremely low.

The same principle can apply to recruitment companies after years of decline. Recruitment is unlikely to disappear as an industry. If a sector has been falling relentlessly, it is worth investigating the causes rather than assuming a long decline must continue forever.

Watch first, then act

A useful process for battered sectors is straightforward:

1. Identify a company or sector that has suffered a sustained decline.
2. Research the reason for the decline and decide whether it is temporary, cyclical or existential.
3. Create a watchlist rather than rushing to buy.
4. Wait for evidence that conditions are no longer deteriorating.
5. Start small if the thesis begins to work.
6. Keep tracking the idea and the evidence that supported it.

This approach was applied to several recruitment businesses that had been falling for years. The initial observation was simple: recruitment was in trouble, but it was not going to zero. When one name began to show that life was not quite so bad after all, it provided a signal to investigate the wider group.

The move happened quickly. That is often the way with heavily sold shares. The first turn can arrive before everyone has had time to write a neat research report about it.

Use data to generate ideas, not to outsource judgement

Real-time market data, Level 2 order information and lists of top risers and fallers are useful because they encourage observation. They can help uncover patterns that are invisible if you only follow a handful of favourite stocks.

Start by looking at what is moving each day:

• Which sectors are falling together?
• Why are copper companies weak today after being popular yesterday?
• Why might BP fall more than Shell on a down day, yet rise more strongly when the sector recovers?
• Which companies repeatedly appear on the top gainers or top losers lists?
• Are lower-volatility shares more appropriate for your temperament than high-beta shares?

These questions can become original trading ideas. The key is to observe the behaviour repeatedly, not just once, and then test whether the relationship is real.

A stock screener, portfolio tracker or paper portfolio can make this much easier. The aNewFN platform, for example, provides market lists, real-time data and tools for tracking ideas. The value is not in blindly following a screen. The value is in learning how the market behaves.

Paper trading is a valid test, with one major limitation

Paper trading is useful. It allows an investor to test an idea without immediately putting capital at risk. You can build a mock portfolio, track a strategy and see whether apparent skill survives more than a handful of fortunate trades.

It is especially valuable for testing systematic ideas. Suppose you believe a certain publication’s tipped shares tend to be late-cycle recommendations. Instead of making a grand prediction, test it:

1. Create a paper portfolio or a very small spread-betting account.
2. Record each recommendation consistently.
3. Apply the same position size to each test.
4. Measure the results after a meaningful period.
5. Only increase exposure if the evidence supports the idea.

The limitation is obvious: paper trading does not create the same stress as real money. It is easier to hold a theoretical loss than an actual one. A successful paper strategy still needs a cautious real-money test.

But that does not make paper trading worthless. If somebody cannot maintain the discipline to track a demo position, they are unlikely to manage real capital well either.

Spread betting: attractive tax treatment, serious risks

Spread betting can be appealing because, for UK residents, gains are generally treated differently from conventional investment gains for tax purposes. It also offers access to indices, currencies, commodities and shares from a single account.

That convenience should not obscure the risks. Spread betting is leveraged. Funding costs can build up, losses can accelerate and an apparently manageable position can become dangerous if the bet size is too large.

A strategy that doubles a spread-betting account may sound exciting, but it still needs to overcome financing charges. If the account is paying 7% or 8% annualised funding costs on relevant positions, that return hurdle matters.

The sensible approach is to keep the stake size small enough that a bad run does not destroy the account or your state of mind. If a £10,000 account is being used, it should not be set up in a way where one ordinary market shock wipes it out.

A practical principle is to take money out as gains build. If a trading account rises sharply, withdrawing part of the profit can stop the account from becoming so large that every position creates unbearable pressure.

Rather than endlessly increasing size, consider maintaining a manageable trading float and treating withdrawals as income or capital to invest elsewhere. The aim is not to build a position so large that you become a target for your own fear.

Before using leveraged products, understand the provider’s charges, margin requirements and loss scenarios. The Financial Conduct Authority’s guidance on CFDs and leveraged products is a useful starting point for understanding the risks.

The public is usually late

One brutal rule of investing is that the mainstream is generally late.

By the time a financial story has become obvious, made the front page and turned into a popular dinner-party conversation, much of the move may already have happened. The same applies to fashionable social-media trades and familiar publications that respond to a trend after it is already well established.

This does not mean every popular idea is wrong. It means popularity is not a reason to buy.

Financial journalism can offer useful information, but an investor should ask whether the writer has the same incentives, risk tolerance and capital at stake. Journalists are not necessarily investors, and market commentary is not the same as a tested, accountable strategy.

One playful way to test this idea is to paper trade against widely circulated tips using tiny, fixed positions. If the test works over time, there may be something there. If it does not, little has been lost. This is far better than building an entire strategy around a suspicion.

The FTSE 100 may be unfashionable, but that is the point

The FTSE 100 has been regarded as a disappointing market for years. Compared with US indices and markets such as Germany’s DAX, its long-term performance can look miserable.

That has created a powerful narrative: the UK market is finished, nothing works, and there is no reason to own it.

Perhaps. But when an index looks cheap, unloved and structurally overlooked, that is exactly when a contrarian should pay attention. The UK market may continue shrinking in terms of listed companies, but an index that has lagged dramatically can also reprice.

Put the FTSE 100 and DAX on the same chart and the divergence is striking. That does not prove the FTSE must catch up. It does, however, make the question worth asking: what if the consensus has become too negative?

The best ideas often sound ridiculous when first stated. That is why they are not already crowded.

Herd behaviour is not theory, it is visible every day

Think of sheep in a field. One looks up, panics and runs. The others follow, then eventually stop somewhere else and calmly return to eating. Later, another sheep runs in a different direction and the whole group goes again.

Markets do this all day.

A sector is loved one day and hated the next. Silver, gold, Bitcoin, technology shares and high-profile listings can all become stampedes. The herd can continue much longer and run much farther than a rational sceptic expects.

This is why short sellers can get hurt. They may correctly identify overvaluation, yet underestimate the momentum of a crowd. Being right eventually is not enough if the market can force you out first.

Do not stand in front of a stampede. Understand it, recognise it and decide whether you are trading the momentum, avoiding it or waiting for the other side of it.

SpaceX and the danger of IPO pandemonium

SpaceX is a useful illustration of how a great company and a great immediate trade can be two completely different things.

The long-term story is extraordinary. Satellite networks, rockets, space infrastructure and a business that could become one of the defining technology companies of the next era all make for a compelling narrative.

But a compelling business is not automatically a compelling entry point.

When widespread excitement builds around an IPO, the short-term setup can become obvious. If everybody is trying to get access, a first-day pop becomes more likely. That may create a short-term trading opportunity for those prepared to trade it as such, but it can also produce a sharp reversal after the excitement peaks.

The sensible distinction is this:

• Short-term IPO trade: enter only if you understand that you are trading crowd excitement and have a clear exit plan.
• Long-term investment: consider waiting until lock-ups, early volatility and speculative excess have had time to clear.

For a genuinely exceptional business, a patient approach may be more sensible than chasing the first rush. If the long-term thesis remains intact, regular gradual purchases after the initial frenzy may matter more than trying to capture every early move.

The same thinking applies to any fashionable company. A share can fall from 100 to 50 and still be a fine long-term investment if the original expectation is that it could be worth far more in 10 years. But that only works if the investor has a credible thesis and can tolerate the journey.

Build an investment process you can repeat

The market offers endless opportunities. There is no need to chase every rally, buy every tip or mourn every missed trade.

If it is not Bitcoin, it may be gold. If it is not gold, it may be silver. If it is not silver, it may be copper. If a turnaround opportunity is missed today, another unloved company will appear tomorrow.

There is always another bus coming.

A robust process looks something like this:

1. Observe: Follow market lists, sector moves and relative performance.
2. Think independently: Form a view about what a company or market really is.
3. Test: Use a paper portfolio or small position to see whether the idea holds up.
4. Size cautiously: Keep risk below your sleeping point.
5. Review evidence: Update the thesis when facts change, not when the crowd gets noisy.
6. Take profits sensibly: Do not let a successful strategy become oversized simply because it has worked recently.
7. Stay patient: Compounding sensible returns over decades beats blowing up on one exciting trade.

Do not take tips literally. Develop a narrative that belongs to you, test it against the market and give yourself enough room to be wrong without being wiped out.

That is how you avoid becoming exit liquidity for somebody else’s trade. It is also how you stay calm enough to recognise an opportunity when the herd has run off in the wrong direction.

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