Proshare/DigitalLook run seminars at various locations across the country. Dave G attended one held at the Hilton Hotel in Leeds on Wednesday November 10th 2004.
It was attended by approximately 200 people, some of which were members of Investment Clubs, others were private investors, others were day-traders and spread-betters (if that exists as a category of people).
The title of the seminar was “Active Trading” but, whilst the presentations did talk about that, much of the content was applicable to all types of investing.
The seminar was introduced by Emily Trant of DigitalLook. The main point she made was that DigitalLook was parent company behind 3 websites:-
www.digitallook.com which has tools for investors
www.proshareclubs.com which is for investment clubs
www.sharecast.com which is a news service
Below are notes that I took during each of the presentations. I also have CDs from both Alpesh Patel and from Deal4Free if anyone wants to borrow them.
Spoke for about an hour, and was quite entertaining (other than the fact that he was playing up his Leeds upbringing to the Yorkshire-based audience by making frequent, inappropriate references to Lancashire and Lancastrians. I opted to take the moral high ground and not lower myself to making any response, as to defend my homeland would have been to give credibility to the pathetic, bigoted and socially backward views of those that are from east of the Pennines).
· The “Three Ms”
· Method (stock picking techniques)
· Mind (trading psychology)
· Money (money management)
· Most people concentrate solely on “Method” but that, if anything, is the least important of the 3Ms.
· Alpesh’s typical trading approach is to pick higher risk shares and to hold for between 2-6 weeks.
· He uses momentum and recent price movements as his main trading indicators and sets a tight stop loss at the recent 4 day low or 8 day low.
· He typically only has 3 holdings at any one time (as he cannot afford the time to keep his eye on more than that number of active, short term holdings)
· He uses CFDs in the funds he manages but uses spread betting for personal use in commodities
· Sees spread betting as the easiest way to make money in a falling market (rather than using CFDs or options, etc.)
Recommends diversification to reduce risk and that
holding 14-15 stocks is optimal as holding any more does not reduce the risk
significantly (see graph below)
· There are lots of different stock picking techniques. Alpesh’s approach is NOT to try to outsmart the market. His approach is to wait until there is some movement then jump on the bandwagon…but watch closely and jump off before it drops over a cliff
· To give himself a shortlist of shares to examine, he uses filters (which were similar to ours) but these filters also include that the price has risen in the past 20 days, and that there has been more positive news than negative news about the company in the last year
· Before picking shares, have a good idea of what sort of risk you are willing to take, what sort of timescales you want to be investing for, what sort of profit you are looking for from each investment, what sort of loss you are happy to run with, etc.
· “If you make trading errors and don’t follow your plan, then the purpose of your life is to act as a lesson for others”
· When setting price targets, he makes sure that his upside target is higher than his downside target so that if he then picks as many winners as losers, he will end up getting more gains than losses
· Sees setting a downside target as psychologically being the point at which you will know you have made a mistake. For example, if you buy a stock at 100p and expect it to rise, how low will it need to fall before you will be convinced that you have made a mistake. With this approach to setting downside targets, he finds it easier to sell and move on and learn from the mistake.
· When setting stop-loss triggers:-
· look at the historic volatility of the stock to see what the right level is to avoid being “shaken out”
· consider having a tight trailing stop-loss at which point you sell half, and a lower one at which you sell the rest. This will avoid you being completely shaken out if there is a little blip on the way up
· set a re-entry level for getting back in
· Uses a ‘magic’ formulae for limiting your portfolio’s exposure to large losses (but whilst he put great weight in this formulae, I was not convinced by its usefulness…..but see what you think). It is as follows:-
where S=size of the trade
E=portfolio equity(cash and holdings)
R=max risk percentage per trade
P= entry price on the trade
X=pre-determined stop loss or exit price
Let’s say that you have a total account of £100,000 and are willing to risk 2% of your capital on any one trade (i.e. I don’t want any single trade to lose me more than 2% of my overall fund’s value). Now, let’s say your system gives you a signal to buy ABC which is 300p per share and your system says a stop loss should be at 270p.
Entering this into the formula
means E=100000, R=.02, P=3 and X=2.7
Then S= (100000x.02) / (3 - 2.7) = 2000 / 0.3 = 6667 shares. That is, you should buy 6667 shares at 300p. You would therefore be spending £20001 on the shares. If your stop loss was triggered at 270p then you’d lose 10% of that trade’s value which would be £2000 which is the 2% of your total fund which is the maximum loss you were willing to risk.
Spoke for about an hour, and was less interesting though this was mainly due to him being less well prepared rather than that his presentation content was less interesting. He gave a demonstration of the software available to Deal4Free spread bet account holders which, to be fair, looked excellent.
See separate powerpoint presentation “Spreadbetting Presentation” for a copy of his slides.