PART I: The Way of the Shark
1. Itâs a Business Not a Hobby!
Iâm pretty certain that the main reason Iâve been able to make a lot of money trading over the years is that I have trained my brain to be more like a character out of 1960sâ science fiction.
It sounds weird when you put it like that, but itâs true! I think it is the reason I am one of the very few ISA (tax-free) millionaires in the UK thanks to my stock market trading.
Iâm not relying on anyone else to do this work for me. I donât read stuff anyone has written about a share I am looking at. I look calmly at the facts and figures. Logically, what are the good points about the share? What are the risks? Where shall I get out if Iâve got it wrong? And what am I after from the trade?
After all my detective work is done, if I am certain I have more chance of it going up then down, I will make the trade.
I donât understand people who just buy something for no reason other than someone else told them to. Or people who buy an oil company that might not find any. Or who buy an oil company when the oil price is sinking.
One of the main reasons to think of trading with a cold, unemotional brain is that in effect your trading is exactly the same as running a business.
If you are running trading as a true business then each trade you make is like a business purchase. Just as a restaurant buys ingredients to make meals, in effect selling those ingredients on at a higher price to make a profit, we are trying to buy a bit of a company that will increase in value to give us a profit.
Lots of people new to trading think of it as a hobby. It isnât. If you run your trading account as a hobby youâll lose.
âIf youâre investing for excitement, you are a damn fool.â
John Bogle, founder, The Vanguard Group
The best businesses are ruthless
The best businesses, frankly, are run by individuals just as ruthless as sharks. Those at the top of their game â the bosses â are often unemotional and skilled at making difficult decisions that are for the ultimate good of their companies.
So when it comes to firing an employee they will do it unemotionally â or in a bigger company theyâll make someone from HR do it. It doesnât mean to say the bosses are bad people, they just have to make a tough decision. And once done, thatâs it.
Maybe in the evening they tell their partner: âI wish I didnât have to do it.â But they still did it. The ultimate goal is to make sure their company is a winner. If they donât cut the jobs, maybe the company will go bust and everyone ends up on the streets.
When I worked at Sky â and later, when I ran my own cafĂ© â I had to fire people. I didnât like doing it but was firm about it when I did. I even had to fire a woman who was a blackbelt at karate. I made sure I was behind a desk and ready to duck beneath it or make a run down the fire escape in case she tried to karate chop me in the nuts. She took it well, actually. It was a shame to let her go but she had been stealing cash!
If you add them up over the years, I fired quite a few people before ending up as a full-time home trader. Each time it was because it was best for the business. In effect I was cutting a loss. Or potential future loss, as the employee wasnât performing, wasnât right for the job â whatever the reason.
And it is exactly the same with trading. If you are trading you must run it in the same way as youâd run a business.
You have to be ruthless, clear-headed and logical. You have to make tough decisions when you need to and make them quickly. Whatever it takes for your business to succeed.
A shark-like businessman
A sharkâs mind is clear, logical and if need be ruthless. So was Mr Spockâs: if he had to sacrifice one person to save 50, heâd do it without hesitation â even if that person was himself. The needs of the many outweigh the few.
An interesting example of a businessman who reminds me of a shark (or Mr Spock) is someone who, in The Naked Trader, I joked would make a great share trader: Alan Sugar. But Iâm not really joking!
You might not be the biggest fan of Lord âIwasselllincomputersoffthebackofavanwhenIwoz14â Sugar but in business he definitely knows how to act like a shark.
Iâm not saying heâs the worldâs best businessman. What makes him successful isnât never making mistakes â itâs the way he has a track record of looking at what has worked and what hasnât and why. He then takes action as soon as possible.
In his show The Apprentice, Sir A shows his ruthless streak by firing candidates quickly and easily. Even when it is obvious he likes them personally. Then he tends to say, âWith regret, youâre firedâ. This is exactly the same as cutting a losing share without emotion. Maybe next time you cut a share you like, as you press the sell button, say: âWith regret, you are sold.â
He hasnât always been 100% a shark. The Amstrad E-m@iler (yes, thatâs how he spelled it) was an epic failure. It was an old-fashioned landline telephone with an LCD screen, keyboard and ridiculous business model, with adverts on-screen and emails that cost as much as one of those dodgy late-night phone lines to check (ahem, so Iâm told). Analysis showed that it would add ÂŁ150 a month to peopleâs phone bills even with low use.
People stampeded not to buy it.
Sugar stuck with the damn things for several years, throwing good money after bad, and then even more money after that.
So even a true shark can have a patchy record â and get better with time. There is hope for us all!
If Lord A was a trader, how would you see his shark-like instincts at work? He would instantly cut losing positions, the same way he would instantly fire someone because he or she wasnât working out.
He wouldnât even worry about it â itâs just a s...