DIY Investor Magazine
|
June 2017
58
THE GREAT BRITISH TRADE OFF – TRADING VS INVESTING
WHO WILL MAKE THE MOST MONEY THIS YEAR?
OR
DIY Investor’s ‘Diary of a Private Investor’ is written
by two trading partners Humbug (because he owns a
sweet shop and possibly because of his manner) and
Fagin (because he like to pick the market’s pocket); as
part of their product development and market testing
exercise, for the tax year 2017/18 they decided to
challenge each other to see who could produce the
best return on a real life one hundred thousand pound
portfolio, both using different variants of the momentum
trading system they’ve developed.
For three years Humbug traded predominantly small
cap AIM stocks with the ambition of achieving a 20%
annual return on his £50,000 portfolio. However, post
the vote to exit the EU he found it increasingly difficult to
accurately value small stocks and turned to momentum
trading; not for the feint hearted, the competition is for
real. ‘Unto yourself be true’, is vital for the peace of mind
of a trader or investor and Humbug and Fagin are very
different animals.
For this challenge Fagin is in Hare mode looking for
regular quick profits, typically using around a quarter
of his capital on each trade and aiming to make a good
return from small percentage movements in prices using
a combination of the weight of money and a high rate
of stock turn. A typical timeline for holding any given
stock will be anything from a few days to a few weeks.
This quick fire action suits his personality exactly and
is right for him. Humbug in contrast is in tortoise mode,
working towards balancing risk by building a little mini
hedge fund with between thirty and forty different
holdings. Like Fagin he’s using their system to seek
out momentum, but in his case is using a longer time
frame both for selecting and holding, his time line being
anything from a few weeks to the whole year.
Again this slower pace sits well with his calm very dry
demeanour. Six weeks into the financial year and how
are they both doing?
Initially Fagin raced ahead (as you would expect from a
Hare) but then he suffered a serious loss from Petrofac
Plc (PFC) or as he put it quoting from Charles Dickens
‘accidents will occur in the best regulated families’. That
‘accident’ cost him double his risk and meant that he
was -£1800 (or 1.8% percent down) at the 15th May
2017. Given the difference in their two strategies, as you
would expect, Humbug hasn’t as yet experienced the
same thrills and spills, he has however been down from
the very start and as of the same date was -£178 (or
.178% percent down).
It’s worth saying that Fagin believes that because of
his due diligence events like his problems with PFC will
be rare and also that they both feel that current market
conditions are not at the moment conducive to their
style of momentum trading/investing, this being reflected
in their results to date.
You can follow their progress for the rest of the year here
in future editions of this magazine, or by reading the
Diary of a Private Investor at
, it will
be very interesting to see who wins.
Will it be the Hare or the Tortoise?
HUMBUG
- AKA ‘
THE TORTOISE
’
FAGIN
- AKA ‘
THE HARE
’?
