Trading Financial markets : Forex Trading

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xitian
Posts: 441
Joined: Fri Jul 08, 2011 2:08 pm

Fri Oct 21, 2016 1:03 pm

marksmeets302 wrote:By owning pieces of many, many different companies the law of large numbers sets in. You will own shares in companies that committed fraud, but also in companies that have positive surprises. It all evens out.
Aren't you almost equally better off just investing in an index tracker then? Or else you're basically saying you're able to pick out the better performing half of the companies. Wouldn't you be better than any fund manager out there if you can do that?

Had I invested all my money at once 32 years ago in the FTSE100, I'd have got on about 6.5% a year. If I had invested 20 years ago, I'd have only got only a year 3%. If I had built up my position slowly, I'd have got even less. Not hugely attractive to me for the risk involved.
andyfuller wrote:
xitian wrote: I suppose I'm not necessarily looking for automated. I'd just be looking for relatively hands-off or unmanaged. Basically I don't want to have to be on the button ready to sell within seconds if some kind of news breaks which I need to react to. However I'd still like to have a sizeable portfolio (in value regardless of what it's formed of) with close to zero risk.

...

I think the only way to achieve low risk but maintain any sort of return is to either: have massive diversification (i.e. stat arb) with automation, or be manually trading and sitting at the computer all day.
I would say it sounds like you want long term investing not automation and/or sitting at the computer all day. Both of those sound very short term and high risk - the opposite of what you think they currently are.
Sorry, let me reclarify. Last time, I promise. I'd be looking for the best investment ideas for:

- Relatively hands-off - i.e. mostly passive investment
- Good risk adjusted return - e.g. whether this be low risk with medium return or medium risk with high return
- Something which is scalable

Now let me cover where I think several options we've discussed already fall:

- My sports trading (automated) - mostly unmanaged, low risk, high return, pretty unscalable (or at least you quickly hit the limit and grow faster than you can invest)

- Medium frequency manual trading - actively managed, low to medium risk, medium to high return, high scalability

- Long term investing - debatable about how managed/unmanaged it can be, risk is relatively low if you can build a diversified portfolio so let's say low to medium, returns are also debatable (i.e. depends on your picks) let's say low to medium, very high scalability

- Activist investing - a lot of work initially, but then mostly unmanaged, medium risk (because you could lose big and you're unlikely to have loads of different investments), returns potentially very high, very scalable

That's quite generalised of course, but perhaps what I need to do is pick out sub-categories, or specific ways of doing things in the above categories to achieve that slightly better risk/return. Does the way I'm framing the problem make sense though?

Perhaps it's one of those things where if there were a clear answer then everyone would be doing it. In which case, perhaps I should add another criteria which is - possible to be learnt through hard work, reading and practice. For example, long term investing could fit my requirements if I manage to achieve low risk, medium return and relatively hands-off, but the big question is can you really learn to be a good long term investor? Or is the fact that it takes 20-30 years for an investment too long to allow for learning by practice? You won't know whether you're good or bad until it's too late already because it takes you most of a life-time for one attempt.
andyfuller wrote:Long term investing is the least risky imo. I would suggest the opposite of watching the portfolio carefully for long term investing - the idea is to buy and hold not buy and constantly be checking and reacting to every bit of news. Doing that is likely to damage your portfolio very badly over the long term.
I do get that. Trying to second guess everything every day when you have a long term goal is definitely going to be detrimental, let alone considering the transaction and spread costs. However, isn't long term investing basically fundamental value investing? So you're looking for something which is intrinsically cheap, and hope that over the long term you get good value for your money (people will see its value after you). Now should that value change for some reason if new information comes to light - VW cheating on their manufacturing, Tescos cooking their books, etc... Don't you have to re-evaluate your original decision about what value those shares hold? Sure you don't hold a position in shares or your trade on a horse, if you think the value isn't there any more because the situation has changed. In which case don't you have to continually re-evaluate your holding/bets even if they are long term?
andyfuller wrote:Are activist investors good or bad for the firms they target? They hunt down companies they think are underperforming. They buy a stake in the business, then lobby for change. Critics say activists want to make a fast buck and then head for the exit. But you could regard these investors as doing a valuable service - challenging poorly performing company boards and making more profit for shareholders.
Does pretty much sound like private equity to me? Not sure what the difference is. Perhaps the scale?

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megarain
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Location: megarainuk.blogspot.com

Fri Oct 21, 2016 2:44 pm

My OP (opening post), trader, is having a bad day.

Interesting to see how he gets out of it :
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andyfuller
Posts: 4618
Joined: Wed Mar 25, 2009 12:23 pm

Fri Oct 21, 2016 3:25 pm

xitian wrote:Aren't you almost equally better off just investing in an index tracker then? Or else you're basically saying you're able to pick out the better performing half of the companies. Wouldn't you be better than any fund manager out there if you can do that?

Had I invested all my money at once 32 years ago in the FTSE100, I'd have got on about 6.5% a year. If I had invested 20 years ago, I'd have only got only a year 3%. If I had built up my position slowly, I'd have got even less. Not hugely attractive to me for the risk involved.
There is a lot to be said for just going for a very low cost index trackers - most funds do not out perform them and individuals are also unlikely to outperform them. But people in my experience to date don't tend to like trackers, one of the main reasons being that people think they are better than they are at stock picking. The FTSE100 isn't the most diverse tracker to invest in as it is quite highly weighted in certain sectors.

A combination of trackers and stock picks is a better happy medium.

Dollar cost averaging is by far the best way of opening a long term position imo as it removes the issue of timing your entry.

xitian wrote:That's quite generalised of course, but perhaps what I need to do is pick out sub-categories, or specific ways of doing things in the above categories to achieve that slightly better risk/return. Does the way I'm framing the problem make sense though?
Yes that makes sense.

I would say you can forget about activist investing unless you have a hell of a lot of money - reason being your vote scale is likely to be meaningless and you won't be able to get on the board to make changes.

I guess Peter is doing his within a fund that has substantial resources.
xitian wrote:perhaps I should add another criteria which is - possible to be learnt through hard work, reading and practice. For example, long term investing could fit my requirements if I manage to achieve low risk, medium return and relatively hands-off, but the big question is can you really learn to be a good long term investor? Or is the fact that it takes 20-30 years for an investment too long to allow for learning by practice? You won't know whether you're good or bad until it's too late already because it takes you most of a life-time for one attempt.
Your scale of long term investing at 20-30years is not what I class as long term investing. For me as a rough rule I class anything 5years+ as long term. So it should be perfectly feasible to get a good hand on if you are any good at it, also you will start to get a good idea well within the first 5 years.

Likewise I don't understand your thinking about needing to be hands on with long term investing, imo you want to behave the exact opposite and timing the price entry/value isn't how I go about looking for long term investments - price comes well down the list due to the time period I am looking to hold for.

I will happily buy a stock at its all time high if I think it is suitable.

xitian wrote:However, isn't long term investing basically fundamental value investing? So you're looking for something which is intrinsically cheap, and hope that over the long term you get good value for your money (people will see its value after you).
For me that isn't how I approach long term investing but I am sure many do. I am much more along the lines of the Motley Fool in terms of how I look at investing and would highly recommend spending time listening to their many free podcasts.

The Rule Breaker ones are an excellent place to start and listen from the first episode:

http://www.fool.com/podcasts/rule-breaker-investing/

Also I would look at many more areas of investing than just sports markets and financials.

I don't know how old you are but with life expectancy as it is now a days you are likely to have decades ahead of you to invest and take advantage of the 8th wonder of the world...compounding.

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marksmeets302
Posts: 505
Joined: Thu Dec 10, 2009 4:37 pm

Fri Oct 21, 2016 4:55 pm

Xitian, just to give an opposing view, to help you choose which type of investor you want to become: I'm not in the business of outsmarting people on valuing companies. To be honest, I don't think I can. That's why I like to be in all companies at once. By doing that it becomes a numbers game where I do know a thing or two. So my focus is elsewhere. I try to estimate volatilities, correlations and (to a much lesser degree) returns in order to build a portfolio that suits me. It's an entirely different game, in which stocks play an important but not exclusive role. A role that is further simplified by not having to worry which companies to buy - I just buy them all.

This doesn't mean such a portfolio doesn't need maintenance. It does, just not on the scale that I'm buying and selling like a madman every day. I usually do about 10 trades per quarter - often just to roll futures to new expiration dates and rebalance a little bit here and there.

Key word in the above is "I don't think I can". For those who know how to read balance sheets it might be rewarding to pick individual stocks. Or people that play golf with the CEO etc. I agree with Andy, for the majority of people buying a simple index fund is probably smarter.

It sounds like you need to be a billionaire to own that many different shares, but it can easily be done nowadays with index ETFs: you can buy the entire S&P500 for 200 dollars. It's very cost effective. Once you scale up to futures it's even cheaper, you buy about $100.000 value of S&P for just 2 dollars :-)

xitian
Posts: 441
Joined: Fri Jul 08, 2011 2:08 pm

Sat Oct 22, 2016 2:38 pm

andyfuller wrote:The Rule Breaker ones are an excellent place to start and listen from the first episode:

http://www.fool.com/podcasts/rule-breaker-investing/
Thanks for the links. I'll definitely take a look!
andyfuller wrote: Also I would look at many more areas of investing than just sports markets and financials.
Yes, I'm always thinking about that too. I only consider financials because they're vaguely related to sports. In some ways very different though.
andyfuller wrote: I don't know how old you are but with life expectancy as it is now a days you are likely to have decades ahead of you to invest and take advantage of the 8th wonder of the world...compounding.
In my 30s. Yep, no better example than me starting with £500 on Betfair, and having over £10,000 by the end of my 4th month back when I started. I was compounding growth every day (increasing stakes), but quickly hit the limit.

xitian
Posts: 441
Joined: Fri Jul 08, 2011 2:08 pm

Sat Oct 22, 2016 2:41 pm

Mark, I think you have some really interesting ideas too, and probably matches my way of thinking quite well.

I'll contact you offline assuming you have time to discuss.

Bluesky
Posts: 420
Joined: Mon Sep 19, 2016 9:26 pm

Sun Oct 23, 2016 11:09 am

xitian wrote:In my 30s. Yep, no better example than me starting with £500 on Betfair, and having over £10,000 by the end of my 4th month back when I started. I was compounding growth every day (increasing stakes), but quickly hit the limit.
If I was smart enough to have been able to do that then I think I would have a very close look at the financial markets to see if I could do something similar and not have to worry about scaling issues.

I recall reading in AHs blog that PW had told him that many very successful BF traders eventually outgrow the market. By this I assume he meant that due to scaling problems they moved on to other markets (futures perhaps), where a lot of the skills they had acquired trading sports markets could be used to trade the financials.

If I was a profitable full time sports trader then I think it would be very sensible to look at other markets as having all ones eggs in one basket seems extremely risky.

I can see that due to sports events having a time element, and a balanced book element then that does mean they are different to financial instruments, but if your smart enough to crack sports trading, then cracking financial trading could be feasible.

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marksmeets302
Posts: 505
Joined: Thu Dec 10, 2009 4:37 pm

Sun Oct 23, 2016 11:29 am

but if your smart enough to crack sports trading, then cracking financial trading could be feasible.
I think that is an exaggeration. There's a some "easy money" in sports trading that many of us exploit. Except for arbitrage I don't see any easy money lying around in the financial markets (*). And profiting from arbitrage requires huge investments in speed, infrastructure these days. From what I gather most here trade short term on betfair, but (very) long term in the capital markets. I could be wrong though, and I take my hat off to people that succeed on short term trading stocks, forex or what have you. I think it requires a lot more skill than for betfair.

(*) well there's one that I know of, but that doesn't scale either

xitian
Posts: 441
Joined: Fri Jul 08, 2011 2:08 pm

Sun Oct 23, 2016 12:00 pm

I think financial markets are a completely different kettle of fish, especially for the way that I trade. Sports work well for me because of the huge number of independent events with short lifespans which lets me flip my money quickly with a small edge.

With financials you have several (but not hundreds of) markets which are intertwined meaning that the risk is potentially a lot higher for the returns available. The payback is in the scalability in most of the markets.

Of course I'm still just talking about rule-based systems here. As Mark mentioned, things like arbitrage in financial markets are too competitive and also not particularly scalable (though you're still making sh*t loads if you're winning in that area).

I'm not even interested in trying to trade financials manually in the short term.

Bluesky
Posts: 420
Joined: Mon Sep 19, 2016 9:26 pm

Sun Oct 23, 2016 12:02 pm

marksmeets302 wrote: I think it requires a lot more skill than for betfair.
Well for successful BF traders that's probably not good news, but for someone like myself who failed at financial trading it does give me a little bit of hope.

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