Zak Mir Interviews Special Feature
The vast majority of private equity investors end up being merely index trackers through a ‘managed’ fund or ETF, or they are attracted by the glitter of what is exciting, interesting or innovative — in most cases omitting to analyse just how much cash a company is throwing off — free cashflow. We like predictability in cash flows — similar to the venerable Mr Buffet’s approach and which also explains why he would never be involved with a company like Facebook as there is no track record of consistency or, equally importantly, when you project forward their revenue figures, no net present value that came close to their flotation market capitalisation. Zak: On the basis that I am interviewing you for Spreadbet Magazine, I would put it to you that investing for the long term is not rocket science, find a boring blue chip like Diageo — people always need to get drunk(!) — buy the shares and wait a few years. It is not rocket science, even an old fool like Warren Buffett can do it. We do not want to wait until we are 80 to be rich. But the real challenge and excitement is in short term / day-trading even though it may be the North face of the Eiger for many. The $64,000 question is what should the first steps in this area be? Alpesh: First point is that you can still spreadbet for the longer term. The second is that whether it is the long or short term, you still apply the same principles, such as money management, thorough analysis and discipline. Money management is number one — don’t bet or leverage yourself too much where you get into a bind and can’t emotionally take the loss. Here’s an interesting comment for you — David Kyte, now a fully paid up member of the the UK’s Rich List said that when he was on the Liffe floor (futures trading exchange) they used to consult Page 3 of The Sun when deciding what to buy! True! This may be sexist, but what he was really saying was that he did not care in which direction the market went as long as there was momentum he could follow as well as not allowing his downside to exceed his upside expectation. Another approach the private punter can take is technical analysis. Of course we all know nothing is 100% in trading, if it were you would be God. 7/8 times out of 10, then you are son of God.
28 | www.financial-spread-betting.com | September 2012
But I am happy with a 6 out of 10 strike rate. I do not search in vain for the Holy Grail in the markets — it doesn’t exist. Find a system that works for your personality profile and stick with it — applying money management rigidly and if it works, get on with it. If it doesn’t, analyse why and change. Zak: I think what you are missing out on is the emotional side, the common sense side. Unlike you, most people do not have the analytical abilities of a barrister, two degrees, and an IQ north of 150! They also do not have nerves of steel. Most people cannot help buying at the top and selling at the bottom — in the manner of the Bell Distribution Curve, and do not know whether the strategy they employed will work, especially after a few consecutive stop loss hits. Alpesh: Actually it is 3 degrees and an IQ of 178! As for the ‘balls’ — I won’t comment! In actual fact, I believe that over-analysing and having an excessive belief in one’s own intelligence can actually get in the way of trading. You tend to overthink these things. Some of the most successful people in business I know just get on with the job, they are not thinking about the meaning of life, they are just getting on with the task. You should be removing the emotion out of trading, as the moment you get emotional you are not following the process. This should be a detached process. Certain research done on this subject has found that the best traders are actually slightly psychotic or emotionally detached. As well as three degrees I also have two ex-wives, and at least one of them will vouch for my emotional detachment, something which proves helpful in terms of writing the alimony cheques via trading! Zak: Isn’t short term trading for most people the equivalent of smoking, it would have been better if they had never started. There is no upside, unless you know you have the right aptitude or strategy? Alpesh: It is not like smoking; it is like Facebook. For most people it will be absolutely pointless, but it will give you joy and pleasure. How does losing money do this? I will tell you how. What you do, you start small. The common sense thing to do is that while you are determining whether you have the aptitude you start small, say £5 bets for a few minutes a day. Be patient, and start with small amounts.