Wednesday, May 03, 2006

Up close and personal with the "mum and dad" investor

Day 22 - Thursday
Total Account Value: $5405
Available Equity: $2286
Positions Opened: 7
Positions Closed: 8

This morning the All Ordinaries finally responded to yesterday's news of an interest rate rise, shedding more than 60 points in 10 minutes. Much of this can be attributed to the "mum and dad" or amateur investor, who wield great influence on opening prices. Allow me to give you a glimpse into their Wednesday evenings.
In a leafy suburban street, John Smith pulls his oversized Ford Falcon into the driveway, right behind his wife Jan's 4WD. She insisted they buy the latest safety-enhanced model when the twins were born. The spare car sits idle in the garage, right beside the matching bicycles which have lost their original sheen - now covered in cobwebs and dust.

Dad: "Hi honey I'm home! Sorry I'm late for dinner, the traffic was almost as horrendous as this morning."
Mum: "That's alright honey, you weren't late for work again this morning were you?"
Dad: "...well the boss wasn't too happy. He wants me to work this weekend s..."
Mum: "You were supposed to take the twins to the zoo! You're missing out on..."
Dad: "Enough! It's not my fault that the three multi-level carparks closest to work were full by the time I arrived in the CBD!"
Mum: "Remember when I said you should have taken that job closer to home?"
Dad: "We've discussed this before...I've already put up with Gary from work rubbing it in my face all day because he caught the train!"
Mum: "Alright sorry darling. Did you hear the news today?"
Dad: "The miner rescue? Yeah that was a heartwarming story in the end."
Mum: "No the interest rate hike. Today Tonight says it will cost the average household another $50 a day!"
Dad: "Well it wouldn't be so bad if you stopped spending my money on clothing and shoes. Have you seen the latest credit card bill?"
Mum: "And you can talk? What about the home entertainment system you bought on store credit from Harvery Norman!?"
Dad: "Ssshhh! Lower your voice, the neighbours will hear."
Mum: "And do you realise how much it costs now to fill up the Pajero? We need to save for Timmy and Jimmy's education."
Dad: "Calm down, I'm working hard from 9 to 5. What more can I do?"
Mum: "Sell those shares you've been talking about lately"
Dad: "But they've gone up 10% and Simon at work said they're undervalued..."
Mum: "Remember what happened with our Telstra shares? It's gambling!"
Dad: "It's not g..."
Mum: "Sell them now John!"

After McLeod's Daughters, as John regrettably logged on to his trading platform and did as he was told, an ad for a dating site piqued his curiosity on the MSN homepage. Many thousands of similar conversations took place across Australia as online brokers gleefully filled their pockets with excess brokerage fees.

Meanwhile, an overweight single man had just returned home from a doctor's appointment regarding his high blood pressure. With a small but handy share portfolio, he fancies himself as an investor. Despite losing money in the tech wreck, he made some of it back on Lihir Gold thanks to a tip from a high school buddy. As he settled in front of the TV with a big bowl of cheesy lasagne, his ears pricked up as the finance reporter told of a rate rise.

"Oh no, that's not good at all! Australian businesses will struggle and there will be a market correction? What will happen to my stocks? Coles Myer, Woolworths and most of the banks have fallen today? This is bad, bad news.... *wheeze* ...the bubble has burst again! Sell, sell, sell!"

Completely ignoring the long term impact of the news and the failing to understand the extent and potential of Australia's resources boom, our friend is driven by fear and panic, selling off most of his portfolio before digesting his lasagne.
The third character in the story is the shrewd trader. Picturing the scenarios above at quarter to 4 he pre-empts the market, going short on some of Australia's heavily traded blue chip stocks, particularly BHP, RIO, WPL and TLS.

But I wasn't any of those characters. I was the "she'll be right" kind of trader. I knew that the market would open down but I wasn't wise nor bold enough to close profitable positions or open shorts purely on speculation. I do possibly rely on technicals a bit too much, but that's my strategy. Sometimes it works, other times it doesn't. I knew BHP and WPL would fall but they are medium term trades, so I thought my stop losses were loose enough. Obviously they weren't! Two losses now on BHP is becoming a joke.

I had tightened up stops on winners OXR and ZFX, but they really should have been closed when my profits were the highest. My total gain from Zinifex was $472, which is still impressive.

My shorts did well throughout the day including CPU, RIN and AXA as well as Lion Selection Group (LSG). However this was thinly traded today so I shfited the stop loss as close as my broker will allow.

Some stocks at the end of downtrends showed buying potential such as Amcor (AMC) which has only gone down since positive news was released about the business. Today's price surpassed two candlestick hammers that had decreased in volume, and closed the gap which opened on Tuesday morning. Babcock and Brown (BNB) has formed a very nice looking pennant pattern over a long time period. The direction was positive before this formed and I saw appealing signals for a bullish breakout. The money flow indicator has signalled a flood of recent trader confidence, and a gap open today on decent volume (despite downward pressure) convinced me to go long. I'm currently $100 ahead.

$5405 is overall not a bad result on a day like today. Too bad it didn't stay at $5550 like it was at 3:55pm! How did my readers cope with today's action?


Anonymous bonzaboy said...

Andy, have you read "Taming the Lion" by Richard Farleigh?

8:32 pm  
Blogger Trader Andy said...

hey bonzaboy,

no, I haven't read taming the lion but I think I remember it being mentioned in a newspaper.

do you recommend it?


11:18 pm  
Blogger Judy, Greg, Sam and Tom said...

This comment has been removed by a blog administrator.

10:30 pm  
Anonymous Anonymous said...

You're kidding, aren't you? You really think it was 'Mum & Dad Investors' who were responsible for the sell off on Thursday?

So please explain why it all headed up again yesterday. Surely not those same mums and dads. They would still be too scared to jump back into the sharemarket, surely?

I've been reading this blog with the same horrified fascination that people watch slow-moving vehicle crashes. One word immediately springs to mind: gambling. Your 'wins' and 'losses' could just as easliy apply to many other forms of gambling.

So let me get this right. You have been playing this game for 4 weeks now and you have about 5 1/2 grand of your original 6 grand?

Well, best of luck anyway. You're going to need it!

10:34 pm  
Blogger Trader Andy said...

Goody my first flame!

First I want to say that I'm not a heavyweight, authoritative writer on the subject. I'm an amateur with no finance/economics qualifications - an IT guy. I never intended this blog as a expert-quality information source on the markets and how to trade profitably. If you want that, look elsewhere.

This is my own personal journey which I am documenting with my own personal opinion, based on what I have learnt and read so far.

I'm fully aware that most traders lose money initially, some worse than others, and I am prepared to take on that risk.

So before you judge the performance of others, please show the courage to try it yourself for all to see.

btw, I agree with you that "wins" and "losses" are evil words, but I have used them for simplicity's sake.

4:24 am  
Blogger asif ifteakhar said...

Thank you for the great article I did enjoyed reading it, I will be sure to
bookmark your blog and definitely will come back from again.
I want to encourage that you continue your great job, have a good day

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3:24 am  

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