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Overall it's been a very tricky time
Honestly. I thought two weeks ago this summer update would be a quick one, might take me just a few minutes to type up. Probably not much happening, shares stuck in a narrow range, nice quiet summer etc
Instead this update is going to take me hours and hours to compile.It was really tempting for me to say I'll update again in September and save me the bother!
I've made an effort with this because it's all very easy to make money in a gentle market but when the s*** hits the fan, that's when it becomes tough. And I feel because so many of you seem to enjoy my efforts I should make a big effort to cover my thoughts in a crisis and my ideas on how to handle it.
Of course there is no answer to it and I have no idea what the future holds and all we can do is handle it the best we can and all I can do is tell you how I did it. Though I did my best and still lost money! Or at least lost some paper profits.
Well, what a few days. From the calmness of the year so far in a comfortable but perhaps tight range suddenly all hell broke loose. And then it got even heller.
Real hell I would say for private investors - we have all either lost some money or at least by holding on lost some paper profits. I've certainly done some dough and bet you have too. But don't you feel slightly robbed?
I've been trading for donkey's years and even though I've kind of seen all this before, the ferocity of the moves was quite surprising but easily explained. Since the last few market downtrends things have changed and the robots have simply taken over causing all kinds of mayhem and unfairly hitting the more illquid smaller stocks which robots can easily knock down massively for no real reason.
During the last few years too many smaller stocks now trade directly which means prices are just too easily manipulated.
As market analyst Jim Cramer said:
"Credit ratings agency downgrade on Friday isn't what caused stocks to have the worst day since the credit crisis, he thinks the machines of the high-frequency traders are to blame.
"You have to believe that it's related to the machines because the sell off was in total lock step," Cramer said. "It's not acknowledging that gasoline prices are coming down and raw energy declines are good for many stocks. It's not even acknowledging the positives for gold stocks, and gold is off the charts."
The velocity of the selling on Friday was so great, Cramer said you couldn't get in front of it. The sellers were willing to sell below were you wanted to buy, he complained. Instead of rational investors making decisions about individual companies, the machines were pushing things around.
Veteran Market commentator David Buik had this to say:
I have been associated with markets for 49 years and I have never, ever known such volatility such as the DOW has experienced on 9th August 2011.The DOW had moved 2000 points from the opening – down 3%, the up 6%, then down 4%, then up 3%, then down 2% and at 5.30pm it was up 2% at 11033 (20% movement). Quite astonishing! I was there for October 1987, where of course it moved more violently in one direction (down 20%) and also in October 2008, when it fell 9%.
Talk about traders running around like ‘headless chickens’, trying to interpret what the FED will do, what the US government would like to do in terms of employment tax cuts and looking at the tea leaves attempting to interpret whether there will be a ‘double-dip’ recession returning to the agenda. Then there have been hedge fund forced sales, programme trades and auctions to deal with. Talk about a maize of fearful intrigue!
Volatility on the FTSE 100 has also represented a roller-coaster rise to remember and it may not be all over! Some think the market is well over-sold – on valuations they are right and most people are going with the flow, as logic has no role to play when up against dire sentiment – pure momentum trading is the name of the gamer, hoping that political leadership, which has been AWOL in Europe for many months, may sometime make its presence felt."
The other problem is so many people have over leveraging themselves with spreadbets and cfds without having the read funds behind them. That means they get calls demanding money and so as they can't afford it they have to close out, the good as well as the bad.
And that leads to massive tumbling prices just because so many more or less borrowed too much to trade.
Overall it's been a very tricky time, I feel sorry for anyone new who just started trading this week.
Problem is it doesn't matter how good the fundamentals of your favourite company is a savage sell off like that takes everything down.
Even if there is nothing wrong and the company is valued about right or even undervalued it will still get hit.
An even bigger problem is the good smaller ones are really only going down so much because of the computerised nature of the orderbooks which means just a few forced sellers just send small caps down to silly levels.
What the hell do you do during this kind of thing? Well one way would be to sit it out, you have good stocks and in time they'll go back up. Or, sell everything and come back another time. Or keep the good ones and try and short a bit to cover.
The good news? Well, of course because of the fast falls lots of bargains are appearing. Indeed I am looking at some shares smacking my lips thinking these look cheap! And I have already bought some which looked at tempting valuations.
So what did I do?
My main problem - well, look a nice problem to have I guess - is that I made so much money over the last years that any downturn sees me loose on paper anyway quite big amounts. But the money is just the cream off the top and even with the downturn, and even if I lose another half of it, it is still money I never dreamed I would ever have, say 5 years ago.
I'm lucky too - it is really money I can afford to lose, I have no debt and lucky for me I never added more than 10k a year into the market - and I also banked some of the gains (ie the profits went into the bank!) .
Plus I also spent on the future like buying my kid's education already up to 13.
But.. also obviously I don't want to lose a lot of it! I always knew if the ftse hit the low 5700s and dived under I would take some profits and go into some cash. It wasn't a time to sit it out, and I had to decide on some action. Well as I said last time any move to the low 5700s and below was going to force me to take some profits even on my good ones.
So my general strategy was: topslice a lot of stuff, that enables me to hold cash should I need it. Get heavily into FTSE shorts to make money from the downside, and use the DB super short in my ISA to make some money out of the falling FTSE.
Once it looks like the mass panic begins to subside then I look to use the cash to gently and to smaller stakes buy what look like terrific bargains.
That's pretty much what I did in 2008. I never have a clue where the market is going and just try and follow it if I can. It was much harder than any other time it has happened before due to all the automated programmes, dumping from the over leveraged.
I've made some big sums from shorting the FTSE on the spreads. It was hardly difficult as it kept going down. Doing it in £15 and £20 a point level paid dividends, I kept going in and out and already taken decent profits along the way. I'm not going to take credit for these for the website as I don't know the total and haven't got the heart to plough through all the trades.
In the ISA the DB short has proved very handy (It goes up twice the amount the ftse goes down) In fact I made nearly 30% on one of my supershorts.
To get down to specifics I've zapped through taking profits and losses on many shares.. However that doesn't mean I sold everything. I topsliced a lot - ie I took part profits rather than selling the lot to get a cash pot going. I generally sold anything bought very recently because I was topping up at the wrong time.
The result of all this is I have actually banked some big profits, probably over £30,000 but of course I have lost by not taking the profits before all this happened.
My summary would be: I've sold lots, bought some back at cheaper prices, gone into some cash, made a few tentative buys and shorted like crazy.
The problem for me here is I made so many trades, selling shares and then trying to bargain buy them back that it is an absolutely massive job for me to sort them out for the site.
Some shares I had to sell off in bits and pieces, others I could manage almost at once. But it's a nightmare for me to scroll through all the trades and try and come back to you with them all in the time I have.
I've got family here, a lad on holiday and we're also doing things so I just don't have the time to sit here and go through every single trade.
So I'm going to do it in two lots: some (mainly the earliest ones) now and the rest will have to be at the weekend when I should manage to get some quiet time. Apparently on Sunday when the Mrs will take Christopher out for a while!
So if you come back here by the end of this weekend there should be another lot of trades made here. Sorry about it... but this is a hobby not a full-time job and my family comes first.
I've made tons of FTSE short trades, best was getting some on in the early 5700s (as I mentioned I was looking at last time) - no idea how much I made as there were so many but it's several thousand.
My tactic was to get a short on, set a tight stop, if it didn't work, small loss.
If I got the short on and the markets were really tanking then I added more and more as the prices went down and that worked a treat as in the end it meant when I had a gain it was big, meanwhile if I got caught by a market rally I only had small losses. Best gain was £5,700 from six staggered shorts at different prices, started shorting in the late 5600s.
Did the same thing when the market turned and got some nice longs on using exactly the same strategy. That is gradually buying as it went up, then putting different stops in on the different positions each time ensuring if I got in at the wrong time
Best of the pile was getting five fiver longs on from 4799 for a profit of £4,000. I even got some bets on late at night and one at 6am!
To be honest, though the experience was tiring it was all weirdly exciting too. I'm not that happy about that in retrospect given I try and keep emotions in check!
I also piled into the DB ETF x2 supershort (suk2) - this goes up twice as much as the ftse goes down and used this to great effect in the ISA to make money from the downside. Best one was a close to 30% gain on a short I got on in the 5700s. I then lumped into the supershort.
This supershort strategy is described in depth, in fact I think there is a whole chapter on it in Naked Trader 3, the new edition of the book which also covers what to do in downturns, you can pre-order it here by the way
http://books.global-investor.com/books/818560/Robbie-Burns/The-Naked-Trader/?ginPtrCode=10453
(Out Sept 30th)
Obviously also all the shorts I had open have also done really well, especially Inmarat which fell heavily on bad news. Also making lots of money Ocado (LON:OCDO), (nearly £4,000 profit there!) Carpetright and Tullet.
Onto some shares, and here is the first lot, next lot as I said I will try and get done over the weekend.
This lot has already taken me ages.
On some of these I've sold some, then bought back lower. I've also simply topped up on some bargains during the sell off without even selling any at all!
Mainly because there was no real reason for the drops, Telecom Plus (LON:TEP) will still sell telecoms and energy and profits will increase, same with A. Networks etc and also all my companies have good balance sheets, little debt and have all produced decent reports recently.
A few topped up first without selling any ...Telecom Plus was sold off in a silly way but took advantage and topped up at 542. (Telecom Plus itself bought a big whack of shares itself at 535!)
Topped up Entertainment One (LON:ETO) at 150. Alternative Networks picked up at 240. And Kentz (LON:KENZ) got sold down to a silly price (won a billion pound contract recently) topped up at 371.8. (Currently losing a few quid on the last Kentz and AN topups)
And topped up Devro (LON:DVO) (I don't think people have stopped eating sausages!) at 243. I could be horribly wrong doing this but sometimes you have to be brave and also heed Warren Buffet: "Buy when everyone is fearful". If I get those wrong I can blame him at least.
Molins (LON:MLIN) sold at 95 for a loss of £58 and bought back at 82. Paypoint was sold at 511.2 for a loss of £173 bought back 474.9.
Aggreko (LON:AGK) topsliced at 1917 for a profit of £826. Bought back 1627.6. Sold part of New Brit for 900.5 for a profit of £3355 (kept some).
I sold Oxford Instruments (LON:OXIG) at 931.06 for a profit of £528, bought back at 827.5.
888 (LON:888) sold at 34.7 for a profit of £255. Aegis (LON:AGS) went at 153.4 for loss of £126.
Microgen (LON:MCGN) sold some at 165 for a profit of £475 and bought some back at 129. Harvey Nash (LON:HVN) (missed the downturn on that for some reason) sold at 65 for a loss of £1,495 and bought back at 60.
BTG (LON:BGC) spreadbet got stopped out on a trailing stop at 265 for a profit of £820 (kept my long runner on this).
Supergroup (LON:SGP) took profit at 1015 for profits of £2,590. Spreadbet in Oxford In at 944 for a profit of £875. Genus (LON:GNS) went at 971 for a loss of £130.
Hit target on the Thomas Cook (LON:TMC) short nicely getting 55 for a profit of £920.
Tullet (LON:TLPR) proved a great short too quitting at 348 for a profit of £1,500
And Inmarsat (LON:ISAT) proved a really excellent short for around the same profit as Tullett but just sticking with that That's a total banked for the site of £11,825 (I think, a bit tired now).
That's it, had it for now, out of time and I need a drink! Hopefully with some quiet time at the weekend I'll round the rest up for you. So tune back in by the end of the weekend and I should by then manage to clear up the outstanding buys and sells.
The table will take longer, probably next week as it takes the webmaster a long time and he is busy at the mo. He may do it in bits probably. He says it's difficult and takes him ages.
I do wish all investors good luck over the next couple of weeks they are bound to be tricky. Overall, don't leverage up, and keep stakes low. If you buy a cheap share but maybe we go into another freefall it could be a good idea come out quickly, you can always try and buy back lower.
And above all, make sure you can afford to lose the money. Please.
Phew. Well, I hope what I wrote may have helped you a bit.
Even in the knowledge you are not alone. I am supposed to be an expert and I've lost paper profits too even with using shorting. And I'll still be here for a while even though as you know I'm close to ending the site because it has become hard work and more of a job than a hobby answering emails.
One thing to remember: it's amazing sometimes how fast confidence can return and picking up the odd stock on a low during the fear could be a great move. But it is crazily volatile right now and impossible to predict.
Goodness knows what will happen over the rest of August, all we can think is it will be difficult and volatile. And hard to handle. If in doubt, perhaps stay out?
It's possible some of the stuff I picked up cheaper could get cheaper still but ..
At least some of a future recession has got to be already priced in now and perhaps if a new lower range could be established so we at least have a bottom that would help.
And I have yet to see any real question marks over any of the companies I like yet. So I remain more half full than half empty.
But we are at the mercy of pumped up traders and crazy robots - we need to beware.
Good luck!
