Portfolio Management
07/13/2005
Some of the vital issues covered in money management which are second nature to any professional investor include:
- Handling volatility
- Adjusting your trade/bet size to allow for profits
- If you are 'short' as well as 'long' can you have more positions?
- What do you do if you have a losing streak; how do you change position size?
- When do you take a loss?
- How much money do you place in each trade?
But all the above are new to financial journalists. Don't get me wrong, go on any trading floor and they will have Bloomberg TV and CNBC playing. But then, you will notice two things.
One, the volume is off. Two, they all have their backs to the TV anyway. When I was at Bloomberg TV and we would be preparing for the show in the evening, every desk had a TV on it. Now, few if any employers would provide every member of their workforce with a TV and it didn't take much to work out the TV was not there so we could tune in to the latest day-time soaps thanks to our benevolent employer. And no one who wanted to keep their jobs would switch onto a soap, except perhaps fleetingly as they looked for the output from Bloomberg.
But, we would occasionally switch onto CNBC, just to keep an eye on what stories they felt were important. Interestingly, one day, some dignitaries were visiting and a not went round that it does not exactly look well if we are seen to have CNBC playing on our desks whilst producing a show. Well I can assure any dignitary, VIP, viewer that if Bloomberg took ideas from CNBC, then I didn't notice it.
And here is another secret. It looks comforting for the client to think these guys, and it is mainly guys, are so well informed they don't watch anything except financial channels. Well, I have news for the naive client being shown around a trading room. If you want to know what the dealers and traders are really watching, don't look at the TV screens, take a look at their computer screens. Sure, they will have a Bloomberg screen up and be monitoring their positions, but they all have more than one screen and at least one of their eight screens will be logged on to www.porsche.com.
Okay, so when was the last time a financial TV presenter recommended a stock and analysed how it impacts your existing portfolio? He doesn't does he? He can't. What with the thousands of viewers watching (or millions watching if you are a TV presenter reading this and have a high estimation of yourself).
Consequently if you get your stock ideas from watching TV or reading stock magazines then the chances are you collect stocks like you do socks - a real hotchpotch accumulation over time.
Within your portfolio, do you know how many shares you need to reduce risk or what is risk, how it is measured, and how much you are taking in any investment? Most private investors would be clueless.
Value-Growth
On my value growth criteria which are based on stocks meeting revenue and profit growth and good value based on criteria such as price earnings growth, the following names come up. Remember they are for a 6 month outlook: SIG, BAE Systems, Michael Page, Arla, Findel, Rio Tinto, Premier Foods - a lot of old favourites.
Remember I am targeting about 20-20% with the value growth criteria. Last year it produced 33% return. On my momentum value indicator I have Rolls-Royce (India and China flying crazy!), Homeserve, Interserve, Johnson Matthey, International Power, Charter, Dairy Crest (an old favourite).
Crazy Small Stock
These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include: Whittard of Chelsea, Sportech, Glotel, Fletcher King, Merrill Lynch New Energy Technology.
Also, if you would like a free multi-media CDROM on 'Investing Better', which covers spreadbetting, CFD trading and momentum indicators like the MACD, posted to you then drop me an email with your postal address to alpesh@tradermind.com.
Spreadbetters
Spreadbetters and futures traders often look at hard and soft commodities. Here's my quick take on the action for the week ahead:
- Oil: Mixed to lower
- Copper: Mixed to down
- Gold: Up
- £/$: Up then down
- Dow: Mixed to possibly higher
- FTSE 100: Higher
- Soyabean Oil: Mixed to higher
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