I had the pleasure of being invited on a friend’s yacht to sail in a race on Sydney Harbour yesterday. On board, as one of our motley crew, I met a top ranking corporate executive from one of Australia’s largest banks, who we’ll call ‘Phil’ here for the purpose of this article. After the race ended and after being told of my trading experience, he told me he has a large stock portfolio, many of which are speculative resources stocks. He said that he’s excited by all the money he’s making and wondering how long this has been going on?
As would be expected, ‘Phil’ also asked me for some “hot tips” for more stocks to buy. He was surprised with my reply when I told him Daryl Guppy’s standard response of “Tips are for waiters” and that I thought he was asking the wrong questions. (Daryl Guppy is a well known Stock Trader and International bestselling author – see http://www.guppytraders.com)
Rather, I explained he should be asking:
* How much longer will this last?
* When it finishes how will I know & what will I do?
* How do I find out about Technical Analysis and Money & Risk Management?
* What’s a Trading Plan and how do I put one together and follow it?
* How and when do I add to the stocks I already own?
* How should I structure my portfolio regarding individual stock risk, sector risk and total portfolio risk?
* What’s my exit strategy for each stock I own?
* What’s my exit strategy for my whole portfolio?
* How do I keep accurate records and monitor my performance?
* What am I going to do to learn more about myself and my own psychological weaknesses (many of which I may not even realise I have) that can make all the difference as to whether I win or lose long term?
‘Phil’ was genuinely surprised that I had taken the wind out of his sails – luckily it was after our sailing race together, but hopefully before he loses his own financial race.
In January at I issued a worldwide press release to caution unprepared novice investors and traders of the potential pitfalls ahead in the market. My wife Angela and I lost our waterfront home on Sydney Harbour in the ‘Tech wreck’ of 2000, so we speak from hard personal experience.
As complete novices in the market in 1999, we doubled on paper a large stock portfolio in only six months. Then in less than a year we suffered catastrophic losses in the tech stock crash of 2000 and beyond:
* We were set back more than 15 years financially and emotionally
* We were forced to sell our waterfront home – the very same house we had set as a goal soon after arriving in Australia as new and penniless immigrants in 1979. We began renting what I called a ‘dog box’ – as the housing market then rocketed.
* Angela was working as a retail assistant
I have a First Class Honors Degree in Civil Engineering that didn’t help. In fact I have since come to understand that it actually helped to work against me. With our experience of riding some of the largest waves (up and down) in the market and having lost hundreds of thousands of dollars in the process, we know more than most stock traders in the world of the pitfalls that await unsuspecting novice traders and investors.
We have since greatly appreciated being exposed to the successful methods taught by expert traders Alan Hull, Daryl Guppy, Jim Berg, Dr Van Tharp and others to trade profitably and with better risk control.
The forum for serious investors is the only chatroom where you will find Daryl Guppy. We recently received the following response from a fellow Australian trader Nathan Unger on that site (see below):
“…thank you for sharing. Your comments on this subject are very insightful, and rightfully so considering your near trading death experience, per se. Failure is always such a difficult moniker to be branded with, for it involves us having to acknowledge that we were wrong. Of course, acknowledging our mistakes means that we must swallow our pride – an admittedly difficult feat for many traders. Grappling with our own motives amidst the psychological matrix that is the stock market is, to say the least, a bewildering struggle.
In an almost paradoxical fashion the stock market can create whelps out of us through both our losses as well as our victories. We are unnerved when we lose and must somehow muster the courage to tentatively re-enter the markets. Yet, potentially even more dangerous are the unbridled successes that often distort a trader’s perception about their ability to regulate further success – successes that work to chide the future admission of failure.
Who would have thought that winning could actually become a setup for losing – a conundrum of the worst kind? I know of no other occupation that has the ability to masquerade as both friend and foe and then make you think that you can tell the difference.
Your experience is, I believe, a treasure worth perhaps more than the sum of your losses. It reminds me of how the most seaworthy vessels have typically been known to be the ones that have weathered the most devastating storms. Yours is a stellar effort, my friend. I will most certainly be purchasing your book.
Thanks also to Daryl and Alan for their assistance and encouragement in helping to mould John’s encounter into the best trading tool of all – practical experience…”
During 2001, not long after losing our home, we made contact with Daryl and I take this opportunity here to acknowledge and thank him once again for his wisdom and support since that time and also to Alan Hull and Dr Van Tharp since then. Daryl subsequently invited me to write a short article for his regular weekly newsletter (Tutorials in Applied Technical Analysis) which became the first of many articles as my wife Angela and I began our search for education.
He made a strong point that by concentrating on the research needed to write the articles we would pick up good habits and through sharing with others, we ourselves would be more inclined to stick with the discipline involved in the subject being covered.
We have recently collated the articles I have written for his newsletter and they are now available as ‘The Atkinson – Guppy Articles – Stock Market Educational Options for Investing Online & Online Trading – Opportunity for a Home Based Business’. Most of these articles deal with concepts and trading skills which are still relevant to readers today and include the following:
* CONDITIONAL STOP LOSS ORDERS: A real life comparison between using two brokers for monitoring stop loss orders – the true cost of slippage
* DIRECTORS DEALINGS: A snapshot study of the Australian share market to determine, if by monitoring the purchases and sales of company directors with their own shares, whether it is possible to obtain an insight into the future direction of the share price and hitch a ride in the right direction – or jump ship with them.
* EXPECTANCY – the net profit or loss that you can expect over a large number of single unit trades. A series of articles with thanks to the work of Dr Van Tharp, author of ‘Trade Your Way to Financial Freedom’
* TAKE-OVERS: A brief overview of some of the strategies traders apply to take-overs.
* AVALANCHE SELLING and KANGAROO TAILS: A series of articles on the recent phenomenon in the Australian share market caused by computerised automated conditional stop loss brokers savagely cascading sell orders into the market, with prices often rebounding several percent within minutes
Through my writing articles and through our site, my wife Angela and I now aim to provide a ‘Road Map of Discovery to the Stock Market’ to help new and existing online investors and traders find the trading education information they need to initially survive the pitfalls ahead, then to thrive in the market.
We wish you every success in 2005 and beyond and trust that if you haven’t done so already, you will be seeking out the answers to the questions I offered to my sailing team member ‘Phil’.
This article was printed in Alan Hull’s weekly newsletter ‘ActVest’ for Active Investors in March 2005 (available from http://www.alanhull.com) and is reprinted here with Alan’s permission.