DIY Investor Magazine
/
Jan 2017
42
DIARY OF A DIY INVESTOR – HUMBUG HIT THE WALL IN
2016 BUT BOUNCED BACK STRONGLY BY ‘SWING TRADING’
I invested and traded the AIM and Small Cap end of the
market using fundamental analysis, the intention being
to make a total return of 20% a year including dividends.
I failed.
Thinking back, 2014 brings tears to my eyes, 2015 was
good and the first part of 2016 was OK...............................
..........but then I hit a brick wall.
The wall was called Brexit, post the referendum I found
it impossible to value the small companies I focused on
as there are simply too many imponderables. Until we
know exactly what trade deals we as a country can cut
not just with the EU but also with the rest of the world, no
company can give meaningful guidance to the markets.
My view was that if I can’t value something I don’t know
what I should pay for it and if I don’t know what to pay
for something why should I buy it. So with something
of a heavy heart I gave up. However, one of the great
things about the market is that there are many ways to
play it. In September of 2016 I relaunched the portfolio,
this time with £100K of my capital, Swing Trading mainly
the Large Caps, but also the Indices and Commodities.
What I do is take large (relative to the capital in the
portfolio) very short term positions, at a time when I
judge there is unlikely to be any specific negative news
flow, using charts to time my entry and exit points. The
reasons for trading only the large liquid markets are
cost and ease of access. I can buy or sell £20k in one
of the FTSE 100 companies in a flash without affecting
the price at all and with low cost. Trying to do the same
thing with one of the tiddlers is dangerous, expensive
and all but impossible.
Using level two price data and short term charts set
to show both volume and the open, the high, the low
and the close I watch for momentum building up in
something and when I think I have, I buy looking to hitch
a ride on it, selling out and jumping off when the upward
move weakens. In other words trying to catch the swing.
It’s a widely held belief that it’s impossible to time the
markets, but as the legendary trader from a hundred
years ago Jessie Livermore once said ‘no man can beat
the market, but he can beat an individual share’ and this
is exactly where I’m coming from. I do believe that if I
exercise rigid discipline and only trade when conditions
are in my favour I will beat individual shares more often
than they beat me.
Swing trading as I practise it is a percentage play, no
more, no less. I have to win slightly more trades than I
lose and my winnings have to be greater than my losses
and if I achieve that I make money.
So how has it gone since the end of September?
The short answer is very well indeed, I’ve had eleven
winning trades and seven losing ones; the profit minus
the losses totals £3251.
My three best trades were Petrofac Ltd two trades total
profit £1478, The AA Ltd + £886 and Scapa Group Plc
+ £925, my three worst ones were Highland Gold Mining
Ltd a loss of £413, Dignity Plc - £361 and Auto Trader
Group Plc - £377.
£3251 is not a life changing sum of money in itself,
but generated by £100k of capital in three months it
extrapolates to an annual capital gain of 13% which
isn’t bad. Currently I’ve no positions open and I’m in no
great rush to do anything for the sake of it. Right now
I’m watching and waiting for suitable opportunities to
present themselves as I’m sure they will.
I’ll report all I do in 2017 both here in the magazine and
in almost real time on
- wish
me luck, as I wish you luck in navigating your portfolio
through what could be choppy waters ahead.
‘I started the diary of a DIY Investor for
the magazine in May 2014, using £50k
of my own money reporting each time
I made a move.
JESSIE LIVERMORE ONCE SAID ‘NO MAN CAN BEAT THE
MARKET, BUT HE CAN BEAT AN INDIVIDUAL SHARE’
