Friday, 18 July 2014

Why don't I listen to myself?

You may remember that a while back, it must have been in May because it was all about 'sell in May,' I told myself to sit on the sidelines. Did I heed my own advice. Of course not. I'm not talking about special situations like GVC, I'm talking about full scale return to the market.

I've only myself to blame. There I was kicking myself for having lost out on the relentless rise in the markets so I thought I'd give it a go. I should have known better and I've paid the price. Yesterday I pulled out of the US market - you will know what shares I bought because I wrote them all down. Anyway here I am feeling a lot like the Brazilian football team in the World Cup. At least I pulled out before any serious losses were incurred. But there were losses none the less. And I do have a couple of minor victories to report.

My foray into the gold market ended well. Not only was my timing close to being right on entry. I missed the big first day, but I was there for the second. I picked good shares and they almost all raced away. I also jumped off the train as it turned and I banked 2.4% in three weeks.

I also made some nice picks in the UK market using a tried and tested old method for selecting shares and made 5.5% in EXI since 1st July and 10.5% in GEMD in a week. I've proved to myself that I can still do it and that I am not wasting my time even though I am having so much trouble at the moment.

And then there's GVC which trundles on increasing revenue (helped by the World Cup) and raising its already mouthwatering dividends. I do worry that there may be some bad news at some point. No evidence whatsoever, just the anxiety that such a good story can't go on forever.

Crowd Money

And that brings me to my latest reading. Crowd Money by Eoin Treacy

Several years ago I spent a small fortune going to a one day presentation called the Fuller Money Chart Seminar (now known as the Fuller Treacy Chart Seminar). I also subscribed for a while to these guys' daily service. The seminar taught me a lot and the service was good but far too wordy for my taste. 

I can't read through the volumes of, admittedly, terrific stuff that is churned out day after day. They must spend hours scouring the torrent of material produced by the investment community, but they also select and republish material that their subscribers glean from the world of economic and market texts. The analysis they choose to publish comes form all over and since they also comment on the items it is a fabulous resource. If you have the time to work through it. Even though it is not for me (my brain is too small to absorb so much) I cannot recommend it too highly.
On top of that there is the most comprehensive chart library that I have ever seen. It is access to that library that I miss the most. You can try out the service for yourselves for just £55 for a month - and I do recommend it even if you do not subscribe regularly. You will not be disappointed.

So back to the seminar and the book. The seminar has been running for 44 years and has been enjoyed by serious stock market types, mostly professionals, across the world. When I went I think only about one quarter of delegates were paying their own way, the rest were sent by the institutions who employed them. And now Eoin has distilled the important features of that seminar in a book. DO NOT MISS IT. For just short of £30 you have the benefit of two lifetimes' investment experience.

I knew it but did not remember clearly enough

The chart seminar, and now the book, is all about the psychology of the crowd that is the market. Charts betray what is happening in the collective mind of that mob. The trick that I missed in this current stock market rally was that I listened to the Gurus who crawl out of the woodwork at every market bottom and preach a mantra of never ending gloom and markets that will fall to zero. My big folly was that I could not get their words out of my head and went on believing their rhetoric. I missed almost the whole of a five year bull market. (I've made a measly 5% per year over the period).

I'll give you more of a review of the book in the next few posts but here is a taster of what I should have known all along. 

Crowds get swept along by a madness that keeps them thinking that the market will go on in one direction forever. They listen to pundits who whip up the fever by predicting ever more action in the prevailing direction. 

For example, the dot com bubble provided a paradigm that would never end. Companies did not have to generate earnings because they were in an industry that would sweep the world to a new and better place. Naysayers were ridiculed and the bull market went on and on until the point was reached where there were no more buyers. Everyone was in and leveraged to the hilt and now there was no more money. At that point there were only sellers and the market began to tumble. Even then the pundits did not give up. The stockbroker Killik was notorious, telling their clients that every pull back was a buying opportunity and encouraging them to throw good money after bad.

By now, cautious commentators who had been ridiculed as eccentrics, came into their own and the market was talked down until the bottom was reached. But some continued to talk down the market  at the bottom, just like Killik at the top, warning of the Armageddon that was to come. The only way to survive was to take what money you had left, turn it into gold coins and go as far away from civilization as you could. There you would hole up and watch the smoke rising in the far distance. 

I bought a book by just such a pair of pundits in 2009. It is called Wake Up! by Jim Mellon and Al Chalabi.
It was not entirely their fault. Their message played into my generally pessimistic, or at least overcautious, mentality. So I was receiving their message loud and clear and was not critical enough.

Bottom line is that Eoin Tracy's book has reminded me that I was foolish to hold on to the message of doom for so long and I plan to have a ceremonial burning of Wake Up! later today. 

In the mean time I am starting to look at charts in a quite different way and hope I can make a little money before this bull market is over.

More on Crowd Money to come.

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