1. finance
2. investing
3. stocks

JU
ED LY
IT 14
IO
N
Issue 30 - July 2014
The e-magazine created especially for active spread bettors and CFD traders
Foundations
of sand?
How to play
the booming
UK housing
market
The UK’s only free online financial magazine!
Zak Mir
interview
special David
Lenigas
A day in the
life of a
FTSE binaries
trader by
John Piper
Zak Mir’s
MONTHLY
PicK LONMIN
How to use the
52 week high
indicator
To generate
excess returns
And much, much more - packed full of trade ideas from all our contributors!
Feature Contributors
Robbie Burns aka The Naked Trader
Robbie Burns - The Naked Trader has been a full-time trader since 2001
and has made in excess of a million pounds trading the markets. He’s
also written three editions of his book, “Naked Trader” and the “Naked
Trader Guide to Spreadbetting” and runs day seminars using live
markets to explain how he makes money. Robbie hates jargon and loves
simplicity.
Dominic Picarda
Dominic Picarda is a Chartered Market Technician and has been
responsible for the co-ordination of the Investor’s Chronicle’s charting
coverage for four years. He is also an Associate Editor of the FT and
frequently speaks at seminars and other trading events. Dominic holds
an MSc in Economic History from the LSE & Political Science.
Editorial List
EditORIAL DIRECTOR
Richard Gill
Editor
Zak Mir
Richard was the founder and original inspiration behind Spreadbet
Magazine. A prolific trader for many years and former institutional fund
manager, he holds the CFA designation and now runs the unique tax
free investment house www.titanip.co.uk. A natural contrarian and true
to his Yorkshire roots, his primary investment approach is of a value
bias.
Samuel Rae
Having completed his Economics BSc Degree in Manchester, Samuel
Rae quickly discovered that the retail Forex industry was for him. His
personal trading style combines classic candlestick analysis with a
simple, logical and risk management driven approach to the financial
markets - a strategy that is described and demonstrated in his best
selling book, Diary of a Currency Trader.
Alpesh Patel
Alpesh Patel is the author of 16 investment books, runs his own FSA
regulated asset management firm from London, formerly presented his
own show on Bloomberg TV for three years and has had over 200
columns published in the Financial Times. He provides free online
trading education on www.alpeshpatel.com.
Copywriter
Seb Greenfield
Editorial contributors
Dominic Picarda
Robbie Burns
Alpesh Patel
Richard Jennings
Filipe R Costa
Simon Carter
James Faulkner
Samuel Rae
Anton Kreil
John Piper
Material contained within the Spreadbet
Magazine and its website is for general
information purposes only and is not
intended to be relied upon by individual
readers in making (or refraining from
making) any specific investment decision.
Spreadbet Magazine Ltd. does not
accept any liability for any loss suffered by
any user as a result of any such
decision. Please note that the prices of
shares, spreadbets and CFDs can rise and
fall sharply and you may not get back the
money you originally invested, particularly
where these investments are leveraged.
In comparing the investments
described in this publication and website,
you should bear in mind that the nature of
such investments and of the returns, risks
and charges, differ from one investment to
another. Smaller companies with a short
track record tend to be more risky than
larger, well established companies. The
investments and services mentioned in
this publication will not be
suitable for all readers.
You should assess the suitability of the
recommendations (implicit or otherwise),
investments and services mentioned in
this magazine, and the related website, to
your own circumstances. If you have any
doubts about the suitability of any
investment or service, you should take
appropriate professional advice.
The views and recommendations in this
publication are based on information from
a variety of sources. Although these are
believed to be reliable, we cannot
guarantee the accuracy or completeness
of the information herein.
As a matter of policy, Spreadbet Magazine
openly discloses that our contributors
may have interests in investments and/or
providers of services referred to in this
publication.
2 | www.spreadbetmagazine.com | July 2014
“May you live in interesting times” is supposed to
be a Chinese curse, even though it is not a phrase
which is actually Chinese. I was reminded of it
after reading a recent interview in the Financial
Times with billionaire Zhang Lei. The financier was
boasting how the world’s second largest economy
is now winning in so many ways against the 20th
Century’s economic leader.
CREATIVE DESIGN
Lee Akers
www.cfdmedia.co.uk
Disclaimer
Richard Jennings
Foreword
While it may not be long before China is way ahead of the US in GDP terms, I
would venture to suggest that when you have a command economy and do not
need to consider such peripheral matters such as democracy, free speech, the
environment or even getting GDP figures to be entirely accurate, it ain’t too
difficult to be number one. Nevertheless, one presumes that with new found
success, Western style openness will eventually penetrate China’s Great Wall.
Not that we in the West are without our difficulties. It is to be noted how 11 years
after the Iraq invasion in 2003 and in the run up to what was supposed to be a
withdrawal from the strife torn country, one of the worst examples of attempted
nation building is coming apart at the seams. We have been treated to
predictable spikes in gold and crude oil with the ISIS advance. However, it
remains to be seen if the equally predictable consequences of ill advised regime
change and manipulation provide the US and its allies with a Vietnam style defeat
or simply an ongoing geopolitical sore.
From the perspective of Spreadbet Magazine, it could be that the troubles in the
Middle East kill the post financial crisis economic recovery and end the record
equity market bull run for the US. Richard Jennings of Titan Investment Partners
has been championing the bear argument since the turn of the year.
The question now is whether a bubble burst is on its way, not only for stocks in the
US, but also the housing market in the UK. Interestingly enough, it would appear
from commentators doing the rounds currently that a “melt-up” is now just as
likely as a meltdown, even though we are well on the way in terms of QE tapering
in the US and autumn interest rate rises in the UK. In this month’s issue we have
several special articles focussing on how to play the UK housing market.
Perhaps, rather ironically, it may be that new QE in the eurozone will actually win
the battle in terms of adding inflationary fire to growth in this troubled space. The
way that US firms such as GE and Pfizer have been looking across the Atlantic to
make deals of late underlines this idea as a possible H2 2014 driver.
Closer to home, I had the pleasure of interviewing a man who I regard as a “one
person stock market”, and certainly an example of how to be an entrepreneur
of the most active variety: David Lenigas. Although I am aware he may not be
everyone’s cup of tea, and what is called these days a “Marmite” character, the 26
minute interview on TipTV was open, informative and gave considerable insight
into how Mr Lenigas ticks, as well as the prospects for the 15 companies he is a
board member of. Read the transcript of the interview on page 18.
Enjoy this month’s issue and happy trading.
Zak
July 2014 | www.spreadbetmagazine.com | 3
RIDE THE
VOLATILITY.
TIGHT FIXED SPREADS.
CERTAINTY DURING
THE VOLATILITY.
We’ve consistently delivered fixed spreads during trading hours since
2012, giving you the confidence you need however volatile the conditions
might be. Not all spread betting companies can say the same.
We’ve delivered tight fixed spreads for two years,* giving you the
reliability and confidence you need however volatile the conditions
might be. Not all spread betting companies can say the same.
Apply for an account today capitalspreads.com
Apply for an account today capitalspreads.com
Losses can exceed deposits.
Spread Betting I CFDs I FX
Master the up and down.
Capital Spreads is a trading name of London Capital Group Ltd, which is authorised and regulated by the Financial Conduct Authority.
4 | www.spreadbetmagazine.com | July 2014
Losses can exceed deposits.
Spread Betting I CFDs I FX
Master the up and down.
*Fixed spreads during trading hours since 2012.
Capital Spreads is a trading name of London Capital Group Ltd, which is authorised and regulated by the Financial Conduct Authority.
July 2014 | www.spreadbetmagazine.com | 5
Contents
Titan Investment Partners chalks up a
stunning one year returns anniversary
Fund manager Richard Jennings takes a look
back at an impressive maiden year for Titan
08
60
16
24
45
50
70
83
89
World Cup Spread
Betting Update & The
Open Preview
Patrick Callaghan of Sporting Index updates on
the teams competing at Brazil 2014 and looks at the
upcoming Open golf championship
Foundations of sand?
James Faulkner of
t1ps.com looks at
the macro picture
for the UK
housing market
30
76
Three small caps to benefit
from the housing boom
James Faulkner of t1ps.com looks at three
companies which look set to see bigger
profits on the back of the UK property boom
Fund Manager In Focus
Distressed company and contrarian investor extraordinaire, David Tepper of Appaloosa
Management, is in focus this month
Dominic Picarda’s Technical Take
Continuing the housing theme, Dominic Picarda looks at the charts of three housebuilders
Using the 52 week high indicator to generate
excess returns
Richard Jennings of Titan Investment Partners & Filipe R. Costa look at how to
generate alpha using this market indicator.
A Day in the Life of a FTSE Binaries Trader
The “Psycho Trader” John Piper explains how he trades the markets in this month’s
binaries corner special
Zak Mir’s Monthly Pick
Following the end of the strikes in South Africa, Zak Mir’s top pick for July is
platinum miner Lonmin
The Best of the Evil Diaries
Highlights of what infamous short seller Simon Cawkwell (aka Evil Knievil) has
been trading this month
Robbie Burns’ Monthly Trading Diary
Back by popular demand, Naked Trader Robbie Burns looks at five bombed out
companies to recover over the summer
6 | www.spreadbetmagazine.com | July 2014
36
96
100
108
112
118
122
126
Zak Mir interviews
David Lenigas
SBM editor Zak Mir interviews man of the
moment and “one man stock market”
David Lenigas
Anton Kreil returns!
Following up on last month’s interview with Zak Mir, Anton Kreil gives more valuable
information on how not to be a monkey in the market
Best of the Blog
We look back at the most popular SBM blogs during the month of June
Book Review
SBM reviews the timeless investment classic, Extraordinary Popular Delusions and
the Madness of Crowds
Currency Corner
New SBM contributor Samuel Rae, author of the best selling book “Diary of a
Currency Trader”, explains why he is bearish on the South African rand
Alpesh Patel on the markets
Alpesh looks at what men can learn from women traders
Technology Corner: The essential holiday survival kit
Resident technology expert Simon Carter looks at the latest gadgets to take
to the beach this summer.
Markets in focus
A comprehensive markets round-up of under and out performers during the month of June
July 2014
| www.spreadbetmagazine.com | 7
Titan Investment Partners
Titan
Investment
Partners
chalks up a
stunning one
year returns
anniversary
One year returns anniversary
It was in early 2012 that the seedling of an idea was germinated
between a number of ex-City professionals, headed by former
institutional fund manager and Chartered Financial Analyst,
Richard Jennings. The idea was pretty simple: how to use the
benefits of a spread betting structure but with the discipline of
professional fund management in order to generate completely
tax free returns for investors.
BY RICHARD JENNINGS CFA, TITAN INVESTMENT PARTNERS
8 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 9
Titan Investment Partners
Eighteen months of hard work and planning finally
came to fruition when Titan Investment Partners,
having received FCA approval, commenced
trading in the summer of 2013. A new and unique
boutique fund manager was born with an initial
suite of four investment offerings run on a “fund”
type basis – every investor, however, having their
own account which replicates Titan’s model
portfolios (and whose capital in the model funds
comprises of the actual directors’ and fund
managers’ own money – so ensuring true
alignment with their investors). Unlike a traditional
fund, however, investors can see their positions in
real time (but cannot trade on the account).
“The idea was
pretty simple: how to
use the benefits of a
spread betting
structure but with
the discipline of
professional fund
management in
order to generate
completely tax free
returns for
investors.”
The benefits of a spread betting account are
multi-fold and well known: cheap borrowing
capacity through the leverage facilities offered
(which we’ll come back to as a double edged sword
later) that investors would be hard pressed to gain
access to at the same rates elsewhere (generally
Libor +/- 2.5%), the ability to go long and short of a
financial instrument, access to thousands of
tradable products globally, speedy execution and,
of course, no stamp duty or capital gains tax.
With this in mind then, why do so many investors
lose all their money within 12 months (anecdotal
evidence reveals this figure is as large as 90%)? It is
very simple and is wrapped up in the name – spread
“betting”.
The very vast majority of account holders view the
account more akin to gambling than investing and
so they take the “rope” of leverage (the double
edged sword) and metaphorically hang themselves!
10 | www.spreadbetmagazine.com | July 2014
One year returns anniversary
“With this in mind
then, why do so
many investors
lose all their
money within 12
months
(anecdotal
evidence reveals
this figure is as
large as 90%)?”
Give an investor £10,000 to play with but with no
leverage being applied at all and a minimum of 10
positions, and it is a very unlucky individual indeed
that will lose all that money inside one year. Give
him £10,000 and allow him to leverage it 10, 20 or
even 30 times on just one trade, however, and the
odds of total wipe out increase exponentially…
At Titan, the concept of spread betting is turned on
its head. The portfolios are managed exactly as a
fund manager would run an institutional fund
rather than as highly levered “all or nothing” punts.
Indeed, Chief Fund Manager, Richard Jennings,
was formerly responsible for managing over half a
billion pounds at one of the UK’s largest local
authority pension funds. It is the same principles
of diversification, in-depth research and a seasoned
trader’s gut instinct that are applied to the
management of the Titan portfolios.
Leverage is capped on the equity component at
two and a half times, and even on currencies
leverage no more than six times is allowed. Contrast
this with the 100+ times typical of most FX traders
and the difference in approach is clear.
As the company approaches its important one year
track record anniversary, so far what Titan says on
their “tin” has certainly been delivered. Titan’s
flagship Global Macro account is up a stunning
150.85% against a benchmark return – the MSCI
World Index (in constant $s) – of 19.58% over the
same period to the 13 June 2014 (from 1 July 2013).
Year to date the returns are 83.17% and 3.98%
respectively against a peer group that has
struggled to generate any positive returns this year.
Considering that the average leverage that has
been employed by Titan in this fund in achieving
these returns is less than two times over this
period, and it is illustrative of how their
predominantly asset allocation and value base
approach, that is borne of many years’ experience
in the markets, works. Remember too that for
Titan’s investors in their funds, these returns have
also been delivered totally tax free. One can see that
the spread betting structure is actually the means
to the end to generate the returns in a legal tax free
manner and is far removed from traditional spread
betting.
The firm presently offers four distinct funds, all of
which were seeded with the founders’ own capital
– Global Macro, Natural Resources, Precious Metals
and Small Cap.
All four funds have comfortably outperformed their
benchmarks (based on figures to 31 May 2014) while
offering fees that are also lower than the typical
hedge fund – 1.25% annual fee and 20% of absolute
returns (a typical hedge fund is 2% annual and 20%
of absolute returns). The performance fee is also
subject to a high watermark ensuring that investors
only pay this fee on “incremental” returns.
“Titan’s flagship
Global Macro
account is up a
stunning 150.85%
against a
benchmark
return – the MSCI
World Index (in
constant $s) –
of 19.58% over
the same period
to the 13 June
2014 (from 1 July
2013).”
July 2014
| www.spreadbetmagazine.com | 11
One year returns anniversary
Titan Investment Partners
So, if on a risk scale spread betting is 10 (10
being the highest risk) and typical unleveraged
equity fund management offerings are a 4, Titan’s
funds would sit at around a 5 or 6. With the fund
manager’s own capital being invested in the funds
this also ensures real alignment with investors –
something that is rarely the case in the world of
investment management. Richard Jennings, Chief
Fund Manager is quoted as saying, “I fail to see how
many hedge funds can even dare to ask investors to
put up capital backing them if they themselves are
unwilling to show the faith in themselves.”
“I fail to see how
many hedge funds
can even dare to
ask investors to put
up capital backing
them if they are
unwilling to show
the faith in
themselves.”
When asked where Titan’s funds would fit into a
client’s portfolio, Jennings’s retort was, “Our funds
are most suitable for those clients with an existing
balanced portfolio who have utilised their current
year tax allowances such as ISAs and pensions and
whose focus is on capital growth with a moderate
to high risk profile over a medium term timescale.
We can’t guarantee to deliver stellar returns month
on month for clients and indeed such a
short-termist approach is usually folly in the
markets. But, we can guarantee to be laser focused
and totally aligned with our investors on generating
absolute returns in all market conditions.”
Each of the funds are benchmarked against
appropriate indices to ensure a measurable test of
real “alpha” being generated as opposed to pure
luck. Jennings is also a strong believer in the
cyclicality of the financial markets – a dynamic which
is often driven by the rotational nature of the asset
allocation process – something that the more nimble
and fore sighted investors can take advantage of. A
“closet index” investment approach is most certainly
not applied by Titan. Reasoned, contrarian, value
orientated and well researched asset allocation is at
the heart of their model.
12 | www.spreadbetmagazine.com | July 2014
“A “closet index”
Investment approach
is most certainly not
applied by Titan.
Reasoned,
contrarian, value
orientated and well
researched asset
allocation is at the
heart of their
model.”
The chart below shows the performance of Titan’s Global Macro Fund versus its benchmark – the MSCI
World Index (in constant $s) over the period 01/07/2013 to 30/05/2014.
The available leverage within the funds is also
applied counter-cyclically. That is, the cheaper an
asset becomes, the more leverage is applied, and
vice versa the dearer one is, the less leverage is used.
This type of true contrarian investing takes skill and
also stringent risk control – something that the
Titan mandates impose on the fund manager with
regards to position sizes and other important
parameters.
While the Titan Funds have a predominantly long
bias, the mandates allow for the taking of short
positions. These short positions are typically
employed as a hedge against long portfolio
exposure with a view to protecting existing gains
and limiting the effects of a market correction
however.
In summary then, Titan offers investors:
•
Tax efficient managed account structure
•
Active fund management approach
•
Fund manager and customer outcomes that
are directly aligned
•
Access to a wide range of asset classes
•
Hedge fund style management
(Long/short positions and leverage
availability)
•
FCA & FSCS regulatory safeguards
•
Competitive charges and performance related
fee structure
GLOBAL MACRO CHART
*Titan fund performance is measured gross of performance fees
Under current UK tax legislation profits realised by individual UK taxpayers, through
spread betting, are free of tax. Past performance is not necessarily a guarantee of future
returns and Titan funds are higher risk than conventional unleveraged funds.
For more details visit www.titanip.co.uk
July 2014
| www.spreadbetmagazine.com | 13
INVE STME NT PARTNER S
Specialist Tax Free Fund Managers
+158.94%
How did your fund manager
perform for you last year?
Were those returns produced in a completely tax free manner?
Was your fund manager totally aligned with you?
Are you able to gain instant access to your capital?
Can you see your positions in real time?
Flagship
Global Macro
Returns
At Titan the answer to each of these is a resounding YES.
Join us in the revolution in fund management.
WE OFFER A SELECTION OF FUND TYPES -
+20.71%
MSCI Global
Index Benchmark
FUND RETURN
BENCHMARK RETURN
GLOBAL MACRO
+158.94%
MSCI World Index (constant $‘s) +20.71%
NAT RESOURCES
+104.49%
FTSE 350 Mining Index +11.88%
PREC METALS
+46.84%
ARCA Gold Bugs Index (constant $‘s) +4.21%
SMALL CAP*
+9.45%
Small Cap Index +9.51%
Past performance is not necessarily a guide to the future.
Gross fund returns (before performance fee collection) from inception (01/07/2013) to 30/06/14.
*Returns from 01/08/13 to 30/06/14.
GLOBAL MACRO
NATURAL RESOURCES
PRECIOUS METALS
SMALL CAP
Titan Investment Partners - professional fund management which uniquely
utilises current UK tax legislation in allowing returns from a spread betting
account to be received completely tax free*.
To find out more call us on 0203 021 9100 or visit www.titanip.co.uk
Risk Disclaimer - Titan’s funds use a spread betting account and are leveraged products that involve a higher level of risk to your security and can result in losses of some or all of your
capital invested. Ensure that you fully understand the risks and seek independent advice if necessary. *Spread betting in the UK is currently tax free but this may change in the future.
Authorised
and regulated by |the
14 | www.spreadbetmagazine.com
JulyFCA.
2014 Registration No - 590782
July 2014
| www.spreadbetmagazine.com | 15
Fund manager in focus
David Tepper of Appaloosa Management
“However, if one can get a return of 30% by just
investing in the SPY ETF, almost for free, why share 20%
of the profits plus a 2% management fee with a hedge
fund? That is certainly the question many investors are
now asking themselves.”
Tough Times for Hedge Funds…
At a time when over 90% of hedge funds continue
to underperform the S&P 500, and where recent
statistics reveal that they are the most leveraged
they have been since just before the global
financial crisis, it continues to be really tough for a
fund manager to find ways to beat the market.
While the above spells out just what a tough
environment it is for many hedge funds, it also makes
the remaining 10% that can consistently
generate profits even more valuable. Enter one Mr
David Tepper and his Appaloosa Management. With
a long and exceptional 20 year returns history that
has delivered his investors an average return of 30%
per year, albeit with some volatility attached to it
(the fundamental rules of investment regarding risk/
reward have not yet been re-written although Bernie
“Madeoffwiththemoney” tried it!), Tepper has
become one of the richest guys on the planet and
also topped the list of the highest earners in 2013 at
Institutional Investor Magazine.
In fact, it is the second straight year that Tepper
snagged the top spot and the third time in just five
years – something which is a clear sign that his
earnings are not produced from pure luck which any
fund manager can enjoy if in the sweet spot of a
particular asset class. Tepper actually made a
stunning $3.5bn in 2013 or, put another way, he made
$400,000 per hour. Can you imagine that? Having a
good night of sleep and waking up seven hours later
$2.8m richer? We bet he sleeps like a baby!
DAVID TEPPER OF
APPALOOSA
MANAGEMENT
DISTRESSED COMPANY AND CONTRARIAN
INVESTOR EXTRAORDINAIRE
By Richard Jennings CFA, Titan
Investment Partners, & Filipe R. Costa
16 | www.spreadbetmagazine.com | July 2014
The policies of “helicopter” Ben Bernanke and his
successor Janet “a” Yellen continue to pump the
equity bubble in the US. With all downside risks
seemingly eliminated by the Federal Reserve, the
“hedge” that is part of the hedge fund name has
quite simply lost its meaning. Unsurprisingly, the
mass of underperforming hedge fund managers at
this late stage of the game have given up the ghost,
succumbed to their inane human emotions and have
decided to go all in and chase beta in the market.
“Tepper actually made a
stunning $3.5bn in 2013 or,
put another way, he made
$400,000 per hour. Can you
imagine that? Having a good
night of sleep and waking
up seven hours later $2.8m
richer?”
With most Western central banks maintaining the
zero interest rate policies that are largely now
wholly inappropriate for most countries (the UK in
particular), investing in equities appears to be the
only game in town. However, if one can get a return
of 30% by just investing in the SPY ETF, almost for
free, why share 20% of the profits plus a 2%
management fee with a hedge fund? That is
certainly the question many investors are now
asking themselves. Of course, what this means is
that those fund managers that can generate the
coveted “alpha” are finding an ever increasing bid
under their names.
Tepper posted gains of around 42% in his two main
funds in 2013 – Appaloosa and Palomino – as his bets
on out-of-favour airlines such as American Airlines
Group, Delta Air Lines and United Continental
Holdings paid off. But betting on out-of-favour
stocks is Tepper’s speciality, something that makes
Appaloosa quite unique from its competition. Over
the years Appaloosa has made substantial bets on
many companies that appeared to be in serious
financial trouble. We suggest you also read our
piece on 52-week highs and the debunking of
efficient markets’ theory in understanding the
reasoning behind these returns.
July 2014
| www.spreadbetmagazine.com | 17
David Tepper of Appaloosa Management
Fund manager in focus
While at Goldman he learned a great deal about the
bankruptcy process, financial distress and other
difficult situations companies can go through. More
importantly, he learned how to profit out of those
companies in such severe situations.
At the end of 1992 he departed Goldman, this time
to start a new venture of his own. In 1993 Appaloosa
Management was born, a company that has achieved
extraordinary success in investing in companies in
financial distress. The skills he honed and developed
at Goldman have yielded him huge profits over the
years and led him through multitude debt and
equity positions in companies like Bank of America,
Worldcom, Enron and many others. In 2009, for
example, Appaloosa made a whopping $7bn by
buying distressed financial stocks (including BoFA
and AIG). In another example, in 2001, his company
returned 61% by investing in distressed bonds.
This of course creates an excellent profit
opportunity for those with the guts to go for it.
Tepper looks for value where others can’t seem to
find any. Inside his portfolio of past distressed bets
is Pacific Gas & Electric and Edison International,
both of which he purchased in 2001. As the state of
California decided to bail out both companies, the
investment more than doubled in value in just a few
months.
A Story of Huge Success
Appaloosa was in fact founded with $57m but very
quickly grew into a multi-billion dollar business due
to Tepper’s 30% annualised returns. Now the
company only accepts investments of $5m or more,
and it certainly isn’t tailored for the most anxious
and nervous investors as investments in distressed
firms is a lot more volatile than an investment in the
SPY ETF!
HEDGE FUND RANKINGS TABLE
The Earlier Years…
David Tepper was born on 11th September 1957 and
was raised in a modest neighbourhood in Pittsburgh
by a Jewish family. He is the second of three children,
with his father being an accountant and his mother
an elementary school teacher. While at school, he
wasn’t a naturally brilliant student but completed his
BA in Economics from the University of Pittsburgh in
1978. Soon after graduating he started working for
Equibank as a credit analyst in the treasury
department. Unhappy with the job, he returned to
university to complete an MBA (or Master of Science
in Industrial Administration, as it was then known). A
diligent student, this time his passage through
Carnegie Mellon Business School was outstanding
and the teachers remember him for his straight-A
performance. Kenneth B. Dunn taught him a few
courses and recalls that Tepper always posed
challenging and insightful questions, “He was one
student that always kept me on my toes”, he remarks.
18 | www.spreadbetmagazine.com | July 2014
After completing his MBA, Tepper found himself a
job at Republic Steel in Ohio where he stayed for a
few years, even though the pay was not great. It was
in 1984 that he moved to Keystone Mutual Funds
(now part of Evergreen Funds) and then one year
later proceeding to secure himself a job at the
coveted Goldman Sachs. At the time, the high yield
sector in the investment management industry was
in its infancy and it was quite a coup for Tepper to
find himself part of this area through working as a
credit analyst. It was his insights from Carnegie
Mellon that soon began bearing fruit and in six
months he was promoted to head trader on the high
yield desk, and where he continued to work for eight
years.
Tepper applied the knowledge he had garnered to
improve the trading models, something that gave
him a huge advantage relative to his peers.
“In 2009, for
example, Appaloosa
made a whopping
$7bn by buying
distressed financial
stocks (including
BoFA and AIG). In
another example, in
2001, his company
returned 61% by
investing in
distressed bonds.”
With his specialty being “distressed” investments,
Tepper always looks for what other investors would
deem to be the “worst” companies – those that
nobody loves and that are near default. Under
certain conditions, investors overreact and push the
value of these companies too low.
In 2002 Tepper bought a stake in one of the most
unloved companies ever – Enron. The company
ended up in bankruptcy but, in a little known fact,
he actually made a fortune when it was reorganised.
Worldcom is yet another example of Tepper’s
success having bought a stake in the company after
it defaulted on its debt payments. He also bought
Conseco’s shares when the company was near
bankruptcy but, as it emerged from Chapter 11 in
2003, he made a fortune again. The success stories
are many and include companies as diverse as MCI,
Mirant, and Marconi. What they all have in common
is the use of DEBT to obtain a position in the
company.
July 2014
| www.spreadbetmagazine.com | 19
David Tepper of Appaloosa Management
Fund manager in focus
More recently, Tepper took the opportunity created
by the mortgage collapse in the financial sector in
2007/08. Supported by the idea of certain banks
being “too big to fail”, he bought shares in BoFA
at an average price of $6.73 in early 2009. As the
US government intervened to avoid the worst, the
shares rose to $15.80 in the fourth quarter of 2009.
At the same time, Tepper also bought AIG debt for
10 cents on the dollar, only to sell it later at 61 cents
on the dollar. In that particular year, Appaloosa
recorded its second best ever performance with a
return near 132% and a dollar gain of nearly $4bn.
The trick, as already referenced, has been to buy into
the instrument just as the asset class is near its death
throes: when the upside is huge compared with the
potential loss. Clearly this requires patience as
nobody ever rings a bell at the top or bottom!
Other successful bets include scooping up
Argentine sovereign debt in 1995, the Korean won in
1997, and the Russian government debt in 1998. The
main idea is always to buy the most unloved financial
instruments, those who were most likely way, way
oversold. We wouldn’t be surprised if he is currently
long gold mining stocks like us!
That was, of course, a wrong decision as the sector
collapsed just a few months later. In 2002 he also lost
25% due to a collapse of the high yield debt market.
APALOOSA V HEDGE FUND CHART
20 | www.spreadbetmagazine.com | July 2014
Of course, not all investments were great for
Tepper and he has had some wrong bets. In 2000 he
shorted the dotcom rally, but ended having to close
his positions as his investors were unhappy with the
decision, believing they were giving up upside
potential.
“At the same time,
Tepper also bought
AIG debt for 10
cents on the
dollar, only to sell
it later at 61 cents
on the dollar. In
that particular
year, Appaloosa
recorded its
second best ever
performance with
a return near 132%
and a dollar gain
of nearly $4bn.”
The Tepper Business School
Final Comments
Apart from asset management, and in common with
many of the other fund managers that we have
profiled in this magazine, Tepper is also a
philanthropist. In the early 2000s he made a $55m
donation to the Carnegie Mellon University’s
business school where he completed his MBA.
Pushed by his former teacher and dean of the school
at that time, following the donation the school
changed its name to David A. Tepper School of
Business. Last year the Tepper family donated an
additional $67m to the school. Most of the
philanthropy has been related to education, with
Tepper founding with a friend a political action group
to improve children’s’ education called
“Better Education for Kids”.
Tepper has clearly built a formidable reputation in
the distressed investments’ market, timing his
investments to perfection in the most hated
companies at that time, as investors oversold them
beyond their underlying fundamental value. These
are precisely the qualities that we look to apply in our
fund management approach here at Titan – looking
for large dislocations of value amongst asset classes
and timing our entries into them with
appropriate leverage in order to benefit from the
double whammy of increased returns potential and
reversion to mean/fair value.
If you’d like to learn more about our fund
management company, then click the image below.
All Titan Funds operate within a spread betting account which means gains or losses are currently free of tax.
However, legislation can change in the future. Spread betting is a leveraged product which could result in
losses of some or even all of your initial deposit. Ensure you fully understand the risks.
July 2014
| www.spreadbetmagazine.com | 21
Titan Investment Partners - Natural Resources Fund
1 year Return from inception to 30th June 2014
Titan Natural Resources Fund +104.49% v FTSE 350 Mining Index Benchmark +11.88% (in constant $‘s)
Outperformance relative to benchmark (before performance fee) +92.61%
These figures are gross returns and have not been adjusted for Titan’s performance fees.
Past performance is not necessarily a guide to the future.
• A diversified selection of natural resources
related stocks and positions
• All returns completely free of CGT*
• Leverage capped at 2.5 times on stock positions
• Long/short flexibility
• Directors OWN capital invested within the fund
• Minimum investment of only £10,000
• 90% of gross dividend credit on stock positions
CLICK HERE FOR OUR LATEST FUND MANAGER’S PDF
0203 021 9100 www.titanip.co.uk
Risk Disclaimer
Titan’s spread betting funds are leveraged products that involve a higher level of risk to your security
and can result in losses of some or all of the capital invested. Ensure you fully understand the risks
and seek independent advice if necessary. *Spread betting in the UK is currently tax free but this may
change in the future. Authorised and regulated by the FCA. Registration No - 590782
22 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 23
Dominic Picarda’s Technical Take
Dominic Picarda is a
Chartered Market
Technician and has been
responsible for the
co-ordination of the
Investor’s Chronicle’s
charting coverage for four
years. He is also an
Associate Editor of the FT
and frequently speaks at
seminars and other
trading events. Dominic
holds an MSc in Economic
History from the LSE &
Political Science.
UK housing stocks special
Dominic
Picarda’s
Technical
Take
UK HOUSING
STOCKS
SPECIAL
“The Halifax calculates the average UK property
as costing 4.77 times average earnings, which is
above the long-term average of 4.1 times.”
This creates a favourable backdrop for house builders, which are also in much better financial shape than they have
been in the past. These factors could possibly help support the prices of house building stocks in the near-term,
despite the longer-term risks.
Britain’s housing market is booming. At the
end of May, the Nationwide index of UK house
prices was 11.1% higher than it was a year earlier.
The typical price of a home in London soared
by 18.2% over the same period.
True, houses still cost less than they did at the peak of the last cycle
in 2007. But bricks-and-mortar is nevertheless expensive by historic
standards. The Halifax calculates the average UK property as
costing 4.77 times average earnings, which is above the long-term
average of 4.1 times.
It’s not just British houses that are expensive right now, though. The
firms that build them are also sporting fancy price-tags. The
accompanying chart shows the price/book ratio for UK home
construction companies going back to 1980. It compares the
builders’ share prices with the valuation of their net assets. Today,
this ratio stands at around 1.6 times, compared to a long-run average of around 1.1 (see chart overleaf). Over a two-year time horizon,
history suggests there’s a big risk that the industry will suffer negative returns.
Of course, these are not ordinary times. The state will likely do
whatever it can get away with to keep the housing market puffed
up, thereby shielding the banks from insolvency. Even when interest
rates do go up, they are likely to do so gently at first. And, the cost
of servicing a mortgage is still fairly low.
24 | www.spreadbetmagazine.com | July 2014
price/book ratio for UK home construction companies
July 2014
| www.spreadbetmagazine.com | 25
Dominic Picarda’s Technical Take
UK housing stocks special
MJ Gleeson
Bellway
While the house building sector as a whole does not
offer great value right now, Bellway is an
exception. Based on its recent share price of 1,422p,
the Newcastle-headquartered firm has a prospective
dividend yield of 4.5% and is trading on around 1.1
times its net tangible assets. Its finances are sturdily
underpinned too, as it has minimal debt. Based on its
valuation and risk characteristics, the ShareMaestro
model says it should currently be trading at more like
2,240p. These characteristics make it an interesting
proposition to value-orientated investors.
BELLWAY CHART
26 | www.spreadbetmagazine.com | July 2014
It was somewhat spooky how Bellway’s major
reversal happened around 1,700p, at more or less the
same level where it peaked back in 2007. Enthusiasts
for patterns will doubtless interpret this as a bearish
“double top” formation, especially in light of the big
losses that have followed. In reality, Bellway’s share
price is at something of a crossroads, having dipped
below its 10-month exponential moving average, but
lately showing no firm direction either way. Were its
20-day moving average to cross back above its
50-day average, I would be up for long trades,
targeting 1,715p.
It is fair to say that MJ Gleeson isn’t the most
glamorous of house builders. It specialises in buying
brownfield sites in socially-deprived inner city areas,
for which the local councils have hitherto been
unable to find buyers. The business seems to work
nicely enough, though. It makes healthy profits
thanks to the combination of low-cost land and
materials and average selling prices of £118,000.
What is more, it was lately free of debt and sitting
on some £10m of net cash. While the houses it puts
up may be keenly priced, though, its shares aren’t.
According to the ShareMaestro model, the share’s
intrinsic valuation is roughly 345p, compared to the
current price of 378p.
Following its initial 22% sell-off from 467p, Gleeson’s
share price has stabilised of late. It remains above its
10-month exponential moving average, which
satisfies my basic criterion of an uptrend. Were it to
break below here, though, I would become much
more bearish and would start seeking short
positions. Targets on the way down would include
325p, 310p and 289p. Rallies failing around the
50-day simple average would make obvious points
of entry.
GLEESON CHART
July 2014
| www.spreadbetmagazine.com | 27
Dominic Picarda’s Technical Take
Berkeley Group
If any part of the country’s residential property
market is in a bubble, it is surely London.
Inflation-adjusted prices have long since passed their
previous 2007 peak, while valuations are through
the roof. According to Land Registry data released
in February, the price of an inner London home was
10.4 times median earnings. Even in humble
Lewisham, the ratio was 8.5 times; while in posh
Kensington and Chelsea it was an eye-watering 31.3
times. Based on price/book ratio, London-focused
builder Berkeley is no bargain itself, its share price of
2,239p supported by net assets of only 1,064p per
share.
Berkeley’s share price is plainly in a strong
downtrend, having peaked in late February at just
over 2,800p. The selling has been powerful and
determined, while the rallies have generally been
brief. My approach would be to await another of
these spikes higher and then try and open a short
position as the price drops back through its 20-day
average. I would then seek to take profits as the daily
relative strength index reaches the low 30s.
Objectives include 21.10, 20.10 and 19.03.
BERKELEY CHART
28 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 29
www.t1ps.com
UK Housing Market
James Faulkner of
t1ps.com takes a
macro look at the
UK housing market
In market economies, prices are
fundamentally driven by the interplay
of demand and supply. Yet the housing
market stands apart, in that demand
is acutely impacted by the availability
and price of credit. This point is crucial,
especially if we accept that underlying
demand for housing is relatively
inelastic (everyone needs somewhere
to live!), as it becomes clear that
monetary policy is the chief
determinant of price in the
housing market.
30 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 31
UK Housing Market
www.t1ps.com
“In 2012, the country managed to complete just
89,000 private homes (source: the Economist)
creating a huge shortfall against the long-term
average, government targets and demand
requirements.”
Meanwhile, the supply-side picture is dominated by
the Town and Country Planning Act, introduced by
Labour in 1947. Intended to preserve the countryside
from being encroached upon by the urban sprawl,
the Planning Act restricted the rights of developers
and gave local councils powers to determine what
land should be used for. ‘Green belts’ were
subsequently established on the edges of major
cities, thus compounding the restrictions placed on
supply. The results were stark yet predictable.
In the 1920s and 30s, private house-building in
England neared 270,000 units per year. In 2012, the
country managed to complete just 89,000 private
homes (source: the Economist) creating a huge
shortfall against the long-term average, government
targets and demand requirements.
HOUSING SHORTFALL CHART
Since the enactment of the Planning Act and the
introduction of the green belts, UK house prices have
outpaced inflation and house-building has failed to
keep pace with a steadily growing population and a
changing society. Despite the UK enjoying (or is that
“being burdened with”?) some of the highest house
prices in Europe, the UK’s housing stock is among
the oldest.
32 | www.spreadbetmagazine.com | July 2014
According to the charity Shelter, the proportion of
UK families facing unaffordable housing costs
(defined as spending more than 40% of their
household income on rent, mortgage payments and
other living costs) is the third highest in Europe, with
only Greece and Denmark worse off in this respect.
Unsurprisingly, the UK’s housing-centric economy
has had a profound effect on the attitude of
policy-makers. The record low interest rates brought
in by the Bank of England following the financial
crisis were partially intended to ameliorate the
effects of the recession on homeowners by handing
them a massive reduction in mortgage payments.
The ensuing years saw living costs (excluding
mortgage payments) rise much faster than wages,
which left the Bank in the awkward position of
making the choice between tackling inflation
(through higher rates) and helping homeowners (by
holding rates down). The fact that the Bank has thus
far opted for the latter option speaks volumes about
the real goals of today’s central bankers.
While the Bank is still mandated to target inflation
of 2% (+/- 1%), the reality is that the Old Lady is now
engaged in a crusade to re-inflate the economy in
order to bring the nation’s finances back from the
brink. The housing market is a key part of central
bankers’ thinking in this regard. Despite all the talk
of ‘rebalancing’, the UK economy is still essentially
based on consumption, of which the housing market
is a key driver. In order to get the consumer
behemoth rolling again, it was essential that the
housing market be re-inflated to ‘prime the pump’
of consumer spending. So-called ‘unconventional’
monetary policies began to proliferate to do just
that, but it wasn’t until the advent of Mark Carney’s
‘forward guidance’ that things really started to take
off in the housing market and the wider economy.
“Unlike other governmentbacked schemes, Help to
Buy is widely seen to be a
success, with 17,395
people having bought
homes through Help to
Buy since inception,
according to
government figures
released in March.”
By reassuring borrowers that rates would stay lower
for longer, Carney managed to pull the proverbial
rabbit from the hat and reignite the property
market, no doubt to the relief of a grateful
Chancellor (and employer), George Osborne. But
Osborne had a trick up his own sleeve in the form
of his Help to Buy scheme, which enables aspiring
homeowners to get on the property ladder with a
deposit as little as 5%, either through ‘guaranteeing’
the mortgage or directly participating in the
transaction through an equity loan. Although Help to
Buy is a far cry from the heady days of 105%
mortgages, it is certainly unprecedented in that it
directly exposes taxpayers to financial loss, which is
nothing if not a sobering thought given the vagaries
of the UK housing market. Unlike other
government-backed schemes, Help to Buy is
widely seen to be a success, with 17,395 people
having bought homes through Help to Buy since
inception, according to government figures released
in March.
So where does this leave us? Thus far, policymakers’
efforts have been focused on stimulating demand
for housing through reducing the price of credit
and increasing its accessibility. Meanwhile, although
there is plenty of talk about increasing the supply of
housing, there has been precious little action taken
to make that a reality. Although there has been some
half-hearted attempts to liberalise planning laws and
give councils more powers to fast-track
developers’ applications, this amounts to nothing
more than tinkering around the edges, and stops far
short of the planning revolution necessary in order to
enable housing supply to keep pace with demand –
a feat that would require the completion of 250,000
new homes per year, according to KPMG. As alluded
to previously, it is simply not in policy-makers’
interests to tackle the supply issue right now, as
they’re interested in increasing prices, pure and
simple.
July 2014
| www.spreadbetmagazine.com | 33
UK Housing Market
www.t1ps.com
So while it seems logical to expect prices to continue
to rise, whether or not recent price rises constitute a
‘bubble’ is another question. As with so many other
areas of economic activity, the UK exhibits a
polarised housing market, with price rises in
London and the South-East utterly eclipsing the
gains to be had across the rest of the country. Prices
have soared by 18% in parts of London over the past
year, according to Nationwide, outstripping their
peak before the credit crunch. At £362,699 (source:
Nationwide), the average cost of a home in the
capital is more than twice the figure for the rest of
the UK.
Clearly, London property is a special case given its
status as a safe-deposit box for the world’s rich, but
given that the first-time buyer house price to
earnings ratio in London is now at a historic high of
eight times (source: Nationwide), further increases
of the order of magnitude seen of late could have
serious social implications, and it would be a foolish
government that turned the other cheek.
“the big question will
be whether or not
Mark Carney is
prepared to move
aggressively with
interest rates in
order to stabilise the
situation. But if
Carney’s spell as the
Governor of the Bank
of Canada is anything
to go by, I wouldn’t
bet the house on it.”
Indeed, it would be churlish to suggest that
policy-makers are unaware that they are playing with
fire. Clearly, to their minds, they were faced with a
situation that presented them with little choice, as it
was essential that monetary policy accommodated
the cuts being made to public spending. But with
the average house price now having risen beyond
its pre-crisis peak, talk is beginning to move towards
taming the beast.
The Financial Conduct Authority (FCA) has launched
a major crackdown on mortgage lending which will
see borrowers quizzed on their spending habits; the
government’s Funding for Lending scheme – which
gave lenders cheap cash to kick-start the mortgage
market – has been curtailed; and there is talk of Help
to Buy being restricted to purchases of £300,000 or
less, as opposed to the current (bonkers) £600,000
limit. Additionally, the Bank of England has been
given new ‘macro-prudential’ powers that enable it
to force banks to hold more capital, in a move which
essentially equates to a reversion to the good old
days when the Old Lady (rather than the parvenu
FSA) was also responsible for banking supervision.
It remains to be seen whether or not these measures
will prove sufficient to rein-in the housing market.
Should they prove insufficient, the big question will
be whether or not Mark Carney is prepared to move
aggressively with interest rates in order to stabilise
the situation. But if Carney’s spell as the Governor of
the Bank of Canada is anything to go by, I wouldn’t
bet the house on it.
In Canada, Carney was credited with presiding over
the best performance of any G7 economy during the
financial crisis, having taken an aggressive monetary
stance earlier than most of his counterparts and
extending an explicit commitment to keep interest
rates low, while also providing significant liquidity to
the banking system. The result was a much shorter
and shallower recession than elsewhere, but the
flipside is that Canada’s banks and consumers never
really underwent the de-leveraging that took place
elsewhere either. With its housing market beginning
to collapse, Canada’s chickens are only just coming
home to roost, but Carney has long since fled the
hen house.
34 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 35
36 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 37
David Lenigas
Zak Mir Interviews
Zak Mir
Interviews
DAVID LENIGAS
Zak talks to man of the moment David
Lenigas on cricket, oil, rare earth
minerals and the markets.
Zak: Welcome David Lenigas. We’re going to talk
a little bit about what he does after the important
stuff which is … cricket. Are you a fan of cricket
David? Do you follow cricket?
Zak: Are there any sectors you particularly like or
is it purely a matter of the opportunity that you
see before you? Obviously the airline sector is
not known for being a profitable one.
David: I follow cricket and very rarely I play it these
days. Good to see Australia’s now number one
again.
David: You know, the airline business we started
was a game changer for Africa when I was
chairman of Lonrho and Ed Winter and the guys
(at Fastjet) have done an absolutely fabulous job. I
think they were probably the most on-time airline
in the world. The last time I looked at the numbers
and spoke to Ed, it was 99.5% on time departure.
Zak: Do you have any sympathy for the England
team?
David: Zero.
Zak: That’s the answer I was probably expecting.
Right, moving on to slightly less important matters. You’re on the board of 15 companies. You
are a serial entrepreneur. Just on a practical basis,
how do you keep track of what’s going on?
David: Well, my main role in life is Chairman, so
raising money and setting strategy. At each one of
the companies there is some good management
underneath me. I mean, I really leave the running of
the business to the CEOs. I pick up a lot of quite
defunct companies, restructure them, raise the
funds, put in the right management, put in the right
deals. Some deals work, some deals don’t and if the
ones that don’t work, don’t work, you get another
deal that does. So, it’s all about management
underneath you.
38 | www.spreadbetmagazine.com | July 2014
The fracking scenario I think will get a lot more
interesting in the UK in the next few years as
government legislation changes. I see technology
as interesting, but from my experience I usually like
playing games with businesses that I understand.
Every time I move away from the areas that I
understand, it usually doesn’t end up pretty.
Zak: And is that the same for private investors? Is
that something they should focus on as well?
Zak: Even better than Ryanair? Unbelievable.
David: I know. Ed’s doing a fantastic job and last
time I spoke to him a couple of weeks ago they
were looking at significantly expanding the fleet.
The big game changer for them is when they can
go from Dar Es Salaam to Nairobi and then I think
it will completely transform Africa.
Well look, the things I like getting involved in are
things that I think there is money to build a
business around. It’s difficult to go and create a
company and a concept, to go and buy assets if
there isn’t enough money in the street to provide
the money to go and buy the assets. Right now, I
see oil and gas as interesting.
Zak: Right, your eponymous company, Leni Gas &
Oil. The shares have risen fourfold in the last six
weeks. A charting success for me perhaps?
David: I’ve been watching.
Zak: And a financial success for people involved.
I’ve actually read that one or two tipsters suggest
that people should take profits and that things
are getting overcooked. How good is that advice
when you are in a situation that is
transformational? A big event has happened that
could really change the face of the company. Is
it a really good idea to take money off the table
and keep fiddling with your position?
David: I always say, in an open forum or a closed
forum, it’s not my place in life to advise people to
buy or sell.
Zak: No, but you yourself would be in there for
the long haul. That’s what I’m saying.
David: I’m not here to give investment advice. Stick
with what you know best, do your research and my
only real advice to private investors is don’t gamble
with money you don’t have.
David: I’ve been in Leni Gas & Oil since it started.
I’ve bought shares on the way up and I’ve
disclosed them. LGO was a concept to build a
medium sized company that would eventually kick
through a thousand barrels a day and then to two
thousand barrels a day.
July 2014
| www.spreadbetmagazine.com | 39
David Lenigas
Zak Mir Interviews
The Trinidad assets will do that for LGO. Not might,
will. It’s a matter of time. We’ve announced that we
are doubling the number of rigs at the Goudron
field. Hopefully, we’ll have that sorted in the next
couple of weeks. Neil Ritson, the CEO, is in the
country trying to resolve that at the moment, which
is good for the field.
There is a lot of oil in this field. What is a lot of oil
worth? I can point to a number of companies, but
I’m not going to on this forum, that have no
production and have “a lot of oil” that are valued in
the hundreds of millions.
Goudron is a big underdeveloped field that was
drilled with the wrong technology sixty to seventy
years ago. Technology has moved on and what
we’re finding in this latest set of drilling, the first
holes in Goudron for thirty-five years, is that there
is a lot more oil down there than even we thought
when we look at the logs compared to what we
have in the resource base. Neil Ritson indicated
that with what we’re finding with new techniques
and technology, we’re going to look at significantly
increasing the store, which obviously flows through
to reserves.
Zak: Moving along from Leni, Rare Earth Minerals.
David: What’s your charting show, Zak?
Zak: I don’t know if I could have done a 0.45p on
the last round as you did, but it was pretty close
to the 200 day moving average at that time so it
was a good opportunity. I’m looking for 1.5 pence
myself so I think we’re about half a penny away
from that.
On the fundamentals side, what I find interesting
with this company is that you’ve got properties in
Mexico, Greenland and in Australia and, from my
research which is maybe not exhaustive, China
seems to have the major resources in that area.
David: And they still do. They control 95% of the
rare earth market.
Zak: Right, so how much of a contribution can
Rare Earth Minerals make?
40 | www.spreadbetmagazine.com | July 2014
David: It’s a long way down the track. If you look at
what Rare Earth Minerals is its really two plays. It’s
the lithium play in Mexico, which is without doubt
the largest asset within the group, and then you
have the rare earth site at Yangibana, Australia,
which is being paid for by Hastings so it doesn’t
require any funding from us and they are drilling
there at the moment. I would expect the drilling to
be completed within the next week or two.
Yangibana is a known rare earth occurrence.
Australia has good mining governance and
Greenland has always been an area of interest.
We’ve got a huge amount of ground around that
Kvanefjeld uranium rare earth deposit and you
know the exploration team actually sit on the
ground on the 17th of this month so that’s not that
far away.
“The
Kvanefjeld
deposit is the
largest rare
earth
deposit in the
worlD.”
The Kvanefjeld deposit is the largest rare earth
deposit in the world. The only issue they’ve got
right now is how the Greenland government
handles the concept of uranium and thorium within
that massive sort of billion tonne resource. The
interesting thing about what we’re looking at in
Greenland, particularly where we are going to start
our exploration efforts, is indications that we have
quite significant rare earths without the uranium
and without the thorium and that is going to be our
first exploration priority target. So that’s the Rare
Earth side which I see as exciting. The lithium side is
going to blow the lights out big.
Zak: Right.
David: I mean I’ve said publicly I’ve been a mining
engineer now for too many years. This to me is a
world class deposit. It’s a simple quarry. I’ve been
involved in complicated mines, complicated
metallurgy. Copper, gold, silver, nickel, coal, you
know? This is a simple quarry. The metallurgy’s
solved.
The world is going to need a lot more lithium and
it’s going to need it quickly, particularly with the
initiatives from Tesla and Elon Musk in building the
Giga Factory and there may in fact be more than
one Giga Factory. That’s what the discussions are
globally on what his ambitions are there.
I mean, that factory is going to produce more
lithium batteries than the whole of the world
produced last year. Just one plant and you know
you are looking at sources principally coming from
the sellers in South America. The average capital
cost for a medium sized lithium mine is the order of
$500 to $800 million and two to three years before
first production.
Mexico is a simple quarry with quite a simple plant
and the key objective there was to keep drilling the
project to see how big it is. At the moment Iithium
is $7,000 a tonne for battery grade material so we
have $26 billion of in ground identified lithium to
good indicated category.
The real scope for Rare Earth Minerals and our
partners is how big is Mexico and the Sonora
project. At the moment we’ve only drilled out
10+ kilometres of what could effectively be a 100
kilometre strike and we don’t even know if we’re
drilling the highest grade areas. This is a big piece
of ground. A quarter of a million acres. We have
basically tied up the entire Sonora province. A: we
want all of it but it takes time and money to drill it
and B: we wanted to keep competitors out.
Zak: So you’re still feeling your way in that
situation?
David: Yeah. But I mean, what have we got now?
3.3 million tonnes of LCE (Lithium Carbonate
Equivalent) in the world.
We’ve got 10 to 20 years’ worth of global supply
already drilled out and what I like about this
project is that its gone from nowhere to being, I
think, within the top 10 lithium deposits in the world
today in a year and a bit.
Zak: Well obviously we could go through your
whole portfolio but it would take a couple of days,
really what I wanted to know is are there any
companies in your portfolio that you feel the
market is under-appreciating or which are
undervalued at the moment?
David: Every CEO thinks their stock is undervalued.
It’s a matter of how you get out there and tell your
story. We’re seeing a good appreciation in Leni Gas
& Oil to get closer to what we as a board feel is the
true value of the asset.
Rare Earth Minerals, I think there are some very
interesting things over the course of the next month
or two. We’ve already disclosed what’s going to
happen. The one that I think will get more people
interested in, if that is the way to answer your
question, is the consortium of companies that will
be drilling the Horse Hill well.
The well is due to spud in July and up until this
morning there is no change in spud date. Horse
Hill is an eight and a half thousand foot well, three
kilometres from Gatwick North Terminal. We know
there are hydrocarbons there because they found
them when they drilled two wells in the 1960s, so
the chances of finding oil are very high.
Zak: This is a fantastic opportunity, in the sense
that these are legacy mines, I suppose. I don’t
know how you describe them in technical terms,
but these previously worked situations seem to be
a rich vein in terms of exploration.
July 2014
| www.spreadbetmagazine.com | 41
Zak Mir Interviews
“Fund managers
do not play shares
these days, it’s a
different world
compared to 2008.
This market is
driven by retail
interest and
sentiment.”
David: When I was a young man, there was an old
gentleman called Frank and he actually had a better
batting average than Sir Donald Bradman. He
actually had a batting average for his career of 102.
And old Frank told me, he said, “Dave, the best
place to find gold is underneath where the old
timers found it” and that has been a lot of what I
look at.
If we look at Horse Hill, people have known about it
for a long time. The majors have had it, the majors
have dropped it. There was a whole area of time in
this country when it was difficult to get things
permitted. It’s not fracking, it’s conventional and
that is the opportunity.
David Lenigas
And other things within the portfolio. Look, I think
the Inspirit Energy boilers are a smashing
technology for Britain. You know, we’ve got some
major utilities interested in this technology and
the other reason I particularly like it, and with what
John Gunn and our team are doing, is that they
have created the most efficient boiler in the world,
which is a green boiler and each one of these in fact
turns into a mini power station.
But there is still some work to be done. The plan
is to have eight to ten pre-production commercial
units sometime in October. Put them in, get them
verified, validated and certified for the EU
marketplace, and then see where the adoption lies.
But look, each one of these companies has a cycle
and it depends how long you keep retail interest on
it. Fund managers do not play shares these days,
it’s a different world compared to 2008. This
market is driven by retail interest and sentiment.
All the fund managers who used to play 20 to 50
million pound market cap shares have gone and I
don’t see many coming back in to the market yet.
They are too busy playing the plus billion dollar
Vodafones or Googles or whatever, so the market is
driven by retail. So it’s a matter of when they
become interested.
Zak: But in a way, they’ve got nowhere else to go. I
mean, there are not many entrepreneurs like
yourself and also, I suppose this reminds me more
of the 1980s. I think that was the last time when
there was that sort of Big Bang type of situation in
the UK anyway when there was a sort of OTC
market going on. It reminds me of when I was
young, 20 or 30 years ago when I first got into the
market, that there are actually situations where
private investors can be in a sort of level playing
field situation in terms of research and knowledge.
David: Let me tell you one thing I’ve actually found
out and I’ve been in the London market now for ten
years as well as a whole lot of other global markets.
Retail does even more research on the things than
even I do. I mean, just reading some of the research
that some of these shareholders in Leni Gas & Oil
and Rare Earth Minerals come up with is astounding
and I think also the market has changed from a
private investor’s perspective with the new tax
legislation, the new ISA rules, the tax free
allowances that are now being given by the
Government and the massive surges in spread
betting and CFDs.
Zak: You don’t think this is a bubbly thing? It’s
actually the start of a new era in terms of, let’s say,
empowerment for the smaller investors.
So between UK Oil & Gas, Doriemus (which I’m not
on the board of, but Don Strang is), Solo Oil and
Stella Resources, they are in for the second week in
July, it’s a month away. Now I think that when that
site activity starts, that’s when I think people will
understand the significance of what we’re trying to
achieve here.
42 | www.spreadbetmagazine.com | July 2014
David: Yeah, I think it is a new era in small to
medium cap market movements in this area,
particularly in this sort of open market here in the
UK. Institutions aren’t playing. I went to New York
the other week and saw some of my institutional
friends from when I was running Lonrho who raised
a lot of money for me to build Lonrho from nothing
into 23 countries again and of the 50 guys in New
York, there’s probably only five that would play in
the smaller end of the market now.
Zak: But do you think the institutional liquidity
might come in to this area at some point?
Which would be great obviously for the people
involved at the moment.
David: It always does.
Zak: They’ll be late to the party.
David: It always does. It’s a bit like, you know, the
old saying that when the Swiss start buying you
know that’s the top of the bill. So yeah, I think retail
will drive businesses to the point that they become
very interesting. They will also provide funding for
a lot of the things that CEOs like myself and other
guys in this smaller to medium end market do and
then it’s a consolidation in the marketplace and
M&A.
Zak: Your funding is only from private
individuals? You don’t go to Royal Bank of
Scotland to get funding?
David: It’s a bit like going to a high street bank
and going, “Please lend me some money, because
I want to go build a business”. The answer is no.
Those guys don’t play in the small end anymore.
There are certain requirements for fund managers.
One is they can’t take too much of your share. Most
like being below 3%. They usually want to trade
things that have volume and liquidity because some
fund managers have liquidity requirements.
Zak: Finally, you’re obviously a big player on the
AIM market and I’ve described you as a one
person stock market anyway, which I think you are.
There should be a Lenigas index or something like
that of your portfolio. But I mean, the AIM itself is
almost sort of like the Wild West, it’s a speculative
Wild West.
July 2014
| www.spreadbetmagazine.com | 43
Using the 52 week high indicator to generate excess returns
Zak Mir Interviews
David: It’s changed, Zak. I remember when I first
came to London, I did Cambrian Mining, Western
Canadian Coal, BDI Mining, River Diamonds. I mean,
when I did the Asia Energy IPO, we raised 11
million pounds. That was the second largest raising
on AIM’s history in 2003.
You know you have companies like ASOS on it,
there are a lot of billion pound companies on AIM.
The regulation is good and, let me tell you, I’ve
done both sides of the fence. I’ve done main board
with Lonrho, I’ve done AIM, and I would hazard to
say that, from a directors’ responsibility and
reporting perspective, AIM is far more onerous on
directors than being a director of a main board
company.
So I think the original concept of the old
Vancouver Stock Exchange and here’s the AIM
market, has changed. You know, New York fund
managers never used to invest in AIM. New York
fund managers now invest in AIM. They have
government issues and rules to look at as well, so I
think the whole AIM debate about this is the Wild
West is wrong.
Zak: So whose agenda is this negativity? If it’s
doing such a good job and its working really well,
which I suppose I think from a speculator’s point
of view it seems to be. You know, coming up with
decent opportunities and ideas and companies.
Who seems to be against it?
Zak: People don’t understand it.
David: People don’t understand it. The market
making system is hard for people to understand.
For ten years, I’ve been trying to understand it and
failed, but it’s a necessary part of this market.
People have tried to change the market maker
system forever and I give up. It works. So, it’s a
market that’s getting more mature and I think AIM
has a big place in this market for incubating
companies, and ideas, and projects and I’m not
saying it’s easy to raise money on AIM, but the rules
are a little more relaxed on how much money you
can raise and when, provided you work within the
rules.
If you are a main board company, you are very
restricted on how you can raise money. The main
board, in my experience, is for companies that are
already grown and aren’t really looking at growing
and acquiring and needing capital to grow and it’s
about “I’m comparing myself to the peer sector”
and I want to outperform the peer group by 7%
or something. The AIM market is about incubator
growth and the rules are really tough.
Zak: And you think it works well?
David: I think it works very well.
Zak: David Lenigas, hope to see you again and we
can go through a few of your other companies as
well.
David: My pleasure. Thank you very much.
David: I don’t know. I think I it’s a legacy issue.
USING THE 52 WEEK
HIGH INDICATOR TO
GENERATE EXCESS
RETURNS
By Richard Jennings of Titan
Investment Partners & Filipe R. Costa
44 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 45
Using the 52 week high indicator to generate excess returns
Investors and fund managers alike are always looking for new ways to gain
any advantage possible relative to the wider market, the veritable “holy
grail”, if you will, in the seemingly endless pursuit of the production of
what is called “alpha” – excess returns attributable to investing skill.
Some dig very deep inside company financial
statements. Others look into all kinds of technical
indicators in an attempt to identify a discernible and
tradable pattern. A few break the insider trading
rules. And there are even those who trade purely on
their emotions and impulses. One way or another, if
the nonsense that is taught in traditional investment
qualifications is correct, namely that markets are
“efficient” (they are not), then they are doomed to
fail in this quest.
Eugene
Fama
Recent Nobel Prize winner, Eugene Fama, argues
that it is better to give up on trying to beat the
market, as it is unbeatable by its very nature! If a
profit opportunity arises out of some identifiable
chartable pattern, Fama asserts that all investors will
then proceed to adopt the same strategy in
relatively little time and the profit opportunity
ceases to exist. Depressing stuff for us active
investors, eh? Furthermore, his contention is that
looking at past data – either prices or news – doesn’t
give you an advantage whatsoever, and the best
you can do is really achieve the same returns as the
market as a whole. By extension, and as evidenced
by the sheer uselessness of analysts en bloc (as this
publication has demonstrated many times over the
last two years), even attempting to look into the
future prospects of a company will not leave you any
the wiser. Competition between fund managers
assures that all information, be it past or prospective,
is already priced into shares.
46 | www.spreadbetmagazine.com | July 2014
As regular readers know, we beg to differ
wholeheartedly on these assertions and believe that,
in fact, asset classes as a whole are largely mispriced
most of the time. Markets are not “efficient” for many
reasons: the principal one being tied to basic human
emotions, that of greed and fear and where we are
on that pendulum at a point in time. Think about it,
if our assertion was not correct, then stock prices
overall (at an aggregate index level) would not
gyrate around wildly and would largely follow a high
correlation pattern with a country’s GDP growth and
profit share over time. Such as in the example of a
“Bushism” – the price you observe for a share is its
rational price… Until it isn’t!!
“As regular readers
know, we beg to
differ
wholeheartedly on
these assertions and
believe that, in fact,
asset classes as a
whole are largely
mispriced most of the
time.”
We also have empirical evidence that under certain
conditions there are really sudden and wide-ranging
changes – exogenous shocks. Just look at some
recent past bubbles. Is it possible to argue that house
prices were rational until 2007 and indeed that
London house prices are today? The inflated prices
until 2007 were partly irrational and ditto with
London housing stock now.
So, if prices always have an element of irrationality
embedded within them, then this is good news for
active investors: it means that we generate “alpha”
precisely by going against the masses. Looking at
past prices in a certain way is sometimes actually
enough to make a profit, as has indeed been shown
by many academics.
Using the 52 week high indicator to generate excess returns
In fact, we can point to Jegadeesh and Titman who,
in 1993, demonstrated that buying the shares of
companies that have performed well during the
recent past does actually result in good future
performance over a short term timescale but then,
oddly, bad performance as time goes on. So, in
effect, it was a shoring up of confidence in both
momentum and contrarian strategies!
So, bearing all the above in mind and the title of
this piece, how can we potentially profit from
assessing a stock’s position relative to its 52-week
high or low?
In a paper published in 2012, Li and Yu, two
researchers from the University of Minnesota,
claimed that you don’t need past prices to make
excess profits. All you need, as the argument goes, is
the current price, the 52-week high and the historical
high; that’s enough to beat the market!
Their intuition is as follows: investors look at the
proximity of the current price of a share to its
52-week high to gather the potential for share
appreciation. When the price is near to the 52-week
high, investors are reluctant to react to positive
news and big higher prices, so they in fact
underreact to news. This means that those stocks
that are near their 52-week highs are in fact likely
undervalued relative to their growth prospects. But,
as the information continues to flow in the same
direction (positive news), the price then finally
adjusts higher.
Seeking for excess returns has always been the main
goal of investors and at the centre of academic
research on what now has the official title of
“behavioural finance”. Some important work has
indeed identified a myriad of anomalies in the stock
market: the January effect, the Holiday effect, the
Weekend effect, the Halloween effect, and many
others. Profit opportunities repeat themselves over
time. Every year, every period, the same
opportunities are still available. Why?
Well, investors are not rational and they do take
biased decisions. For example, in the small cap arena
where smaller retail investors are more active than
institutions, the reason stock prices generally go
much lower and higher than you would expect is, in
the former case, due to clients’ aversion to taking a
loss, and in the latter due to plain greed and the fear
of missing out. Do you really believe that before
taking an investment decision, an investor always
looks into every piece of information available about
a company? Do you really believe that a human
being is unbiased in their decisions? Many
investment decisions are taken without all
information being evaluated, in fact, more often than
you would believe, without any research
whatsoever. Investors look at anchors and guide
their investments based on them.
“In a paper published in 2012,
Li and Yu, two researchers
from the University of
Minnesota, claimed that you
don’t need past prices to
make excess profits. All you
need, as the argument goes,
is the current price, the
52-week high and the
historical high; that’s
enough to beat the market!”
So, the proximity to this 52-week high is a predictor
of future positive returns. At the same time, they
argue that the opposite effect in fact occurs
regarding the historical high (that is a stock price
could have a price of say 200p that is a 52-week
high, but the historical high may be 500p). When the
price is near the historical high, the company has
most likely experienced a period of positive news
flow and traders tend to overreact.
Consequently the shares may be overvalued. So,
on what appears a little confusing but, if you think
about it, a logical assumption, the proximity to
historical high predicts below-market future returns,
as opposed to the proximity to the 52-week high,
which predicts above-market future returns.
July 2014
| www.spreadbetmagazine.com | 47
Using the 52 week high indicator to generate excess returns
Titan Investment Partners - Global Macro Fund
So, through applying this information we can
obtain a sample list of share data with current price,
52-week high, and the historical high. From this data
we can compute the proximity to the 52-week high
as (current price)/(52-week high) and the
proximity to the historical high as (current price)/
(historical high). Then we can rank shares by their
proximity to the 52-week high (highest to lowest).
The top of the list shows candidates for undervalued
companies. Remember to adjust for proximity to the
historical high, as these companies with the highest
values are more likely to be overvalued.
In looking at a list of FTSE350 shares (early June) as
an example, and applying the above criteria, we can
see what pops up in the table below. We selected
the companies with a ratio at or above 0.95
reference nearness to the 52-week high. Then we
ranked this list for the proximity to historical high
(highest to lowest). The top list shows us candidates
for potential short selling, while the bottom shows us
candidates for long positions.
1 year Return from inception to 30th June 2014
Titan Global Macro Fund +158.94% v MSCI World Index Benchmark +20.71% (in constant $‘s)
Outperformance relative to benchmark (before performance fee) +138.23%
These figures are gross returns and have not been adjusted for Titan’s performance fees.
Past performance is not necessarily a guide to the future.
52 WEEK HISTORICAL RETURNS TABLE
So, in following this strategy, from this table you
could select First Group, Hays, Intu Properties, Segro
and BTG to build a long component portfolio, and if
you want a self-financed one and an attempt to
introduce some market neutrality, then you could
sell the other five in the short-selling part.
48 | www.spreadbetmagazine.com | July 2014
You should not take this piece as an advocation
to trade in any of the instruments mentioned and
should always take professional advice in relation
to your own personal circumstances.
All Titan Funds operate within a spread betting
account which means gains or losses are currently
free of tax. However, legislation can change in the
future. Spread betting is a leveraged product which
could result in losses of some or even all of your
initial deposit. Ensure you fully understand the
risks.
• A diversified portfolio of Global Macro themes
• Leverage capped at 2.5 times on stock positions
• Long/short flexibility
• Directors OWN capital invested within the fund
• Minimum investment of only £10,000
• 90% of gross dividend credit on
• All returns completely free of CGT*
stock positions
CLICK HERE FOR OUR LATEST FUND MANAGER’S PDF
0203 021 9100 www.titanip.co.uk
Risk Disclaimer
Titan’s spread betting funds are leveraged products that involve a higher level of risk to your security
and can result in losses of some or all of the capital invested. Ensure you fully understand the risks
and seek independent advice if necessary. *Spread betting in the UK is currently tax free but this may
change in the future. Authorised and regulated by the FCA. Registration No - 590782
July 2014
| www.spreadbetmagazine.com | 49
A day in the life of a FTSE binaries trader
A day in the life of a FTSE binaries trader
BINARY CORNER
A DAY IN THE
LIFE OF A
FTSE BINARIES
TRADER
BY JOHN PIPER
It’s a tough life for us traders. Getting up early to review the
charts before the FTSE opens can be simply too much bother
for some but I consider it essential. As I do this I make notes.
For example:
50 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 51
A day in the life of a FTSE binaries trader
Right, it is now time for breakfast on the beach.
Damn hot it is too – I said it was tough! I have around
six hours until the FTSE opens and the fun begins,
I have to try not to be too miserable in this island
paradise up to that point.
As this is titled “a day in the life” I suppose I ought to
mention the sunbathing, wave jumping, and lunch...
Actually I will mention lunch. I ordered king prawns
and they were around 12” long! Pretty impressive
prawns. And freshly barbequed. It doesn’t hurt that
they cost around £6 – I would have paid ten times
that in the UK, although no restaurant in the UK can
compete with a Thai beach for ambience.
Anyway, at 2:50pm (7:50am in the frozen wastes of
the UK) I was back “on station” at my PC expecting
an early rally and looking to sell, as I thought it was
time for a pullback.
Market opens
The early action supported my view, with a failed
break above 6,300 (meaning the FTSE poked its
head above 6,300 and promptly fell back) and at
this point I bought the following bets:
A day in the life of a FTSE binaries trader
FTSE to end down >50 points – bought at 11.4
A quick note on binary betting
FTSE cash low to be <-100 – bought at 8.9
For those of you unfamiliar with the delights of
binary trading I ought to make a number of
important points.
I expected that both of these bets would prosper on
the back of a decent fall, even if the FTSE does not
go all the way.
I did consider the bet FTSE to end down but it was
priced at around 40 and this did not offer such good
odds. To put this in trading terms the risk/reward
was not to my liking.
Here is a chart of the action, including the sell signals
on the day itself. I have also marked the possible
five-waves up on this chart. The five-wave pattern is
a technique from Elliott Wave Theory.
“All through my trading
career I have always
tended to take profits too
early – not much too early
but still leaving plenty on
the table.”
Unlike with spread betting I am not worried if I do not
catch the high – I cannot get stopped out of most
binary bets, even if I wanted to. The fact a market
may go 30 or 40 points against me is not of major
concern as long as it goes the right way eventually.
If I buy a bet at 40 my maximum profit is 60 (100
– 40) as a binary bet can only move between zero
and 100. That is a reward of only 1.5 times my risk
(60 divided by 40 = 1.5 = 150%). But consider this
ratio on my other two bets. Buying at 11.4 gives me
a potential reward of 88.6 (100 – 11.4) and a ratio of
almost 8:1. Buying at 8.9 is even better giving a
potential reward of 91.1 (100 – 8.9) and a ratio in
excess of 10:1.
Consider this in the context of risking a total of £100
on each bet:
Buying at 11.4 allows £9 per point (11.4 x £9 = £102.60).
My maximum potential reward is then £797.40 (88.6
x £9= £797.40). In percentage terms that is a return
of 777%!
Buying at 8.9 allows £11 per point (8.9 x £11 = £97.90).
My maximum potential reward is then £1002.10 (91.1
x £11= £1002.10). In percentage terms that is a return
of 1,023%!
You will notice that risk/reward is significantly better
if we risk less in the first place and the lesson is that
it pays to get in cheap (or sell high when we sell to
open).
However, the failed break above 6,300 remained a
solid sell signal and this was still in place so I kept
the faith.
For those of you unfamiliar with the delights of
While this was a happening I was fairly busy working
on a new DVD and preparing some trading
examples for that series and a major seminar I was
giving shortly. I find it so much easier to do this
creative work when I am away from my UK office free of many distractions. I also think my frequent
visits to the beach help - there is nothing quite as
inspirational as waves gently lapping a tropical shore.
The sunset was stunning as well!
FTSE starts to move
It was after midday (7pm in Phuket) that the FTSE
started to move. By this point I was fully positioned
and preferred to leave my trades to their own
devices at this point. My girlfriend was after a book
of Thai fauna and flora and I had been dispatched to
find it along with some solid gold earrings, hoping
those trades would help fund to them!
All through my trading career I have always tended
to take profits too early – not much too early but
still leaving plenty on the table. I know many traders
have this problem and many never get beyond the
phase where their trading results are merely a long
stream of small wins and small losses.
Partly, this is a result of an age-old problem facing
traders who choose to spread bet or trade futures
– the problem of mastering two very different skills.
In fact I would say they were opposing skills:
- cutting losses is active and disciplined.
Back to the market…
- running profits is relaxed and passive.
Around 9am the FTSE rallied again to a new high
at 6,307 and then fell back again. But the fall was
not rapid and the FTSE then saw a brief move back
above 6,300 – this was not too encouraging for the
bear case!
Yet traders must learn to do them both concurrently.
Not surprisingly, many fail.
But this brief move to new highs is the sort of action
that can stop out traders who are using spread bets
to place trades and is one very solid reason why I
much prefer binary bets.
For the next few hours not a great deal happened as
the FTSE bounced between 6,310 and 6,270 – in fact
it looked as if we were seeing some sort of
correction before we went higher.
This is one of the principle reasons I now use binary
bets fairly exclusively. You do not need to cut losses,
it is all in the price if you trade carefully, and you are
free to concentrate on running those all-important
profits.
This is particularly true if you trade at low prices. If
you buy a binary at 10 the downside risk is strictly
limited and the spread takes care of a good chunk of
your risk straight off. But you have 90 points to run
all the way to 100.
FTSE 100 Index
52 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 53
A day in the life of a FTSE binaries trader
Anyone who has been trading for a while will know
that it is not the entry that makes a trader – it is the
exit. It is all too easy to make a fuss about entry with
a zillion books, software programs, and gurus galore
telling us all about entry. Entry is important but exit
is a lot more so.
A day in the life of a FTSE binaries trader
Yes, in terms of profits but no, in every other sense.
It is much better to
develop winning habits, not losing ones.
Below is a chart of the whole day’s price movements.
The a-b-c rally I have labelled as “4” is of note as that
signalled the fifth wave decline which was essential
for the profitability of my trades. After that it was
simply a matter of holding on for the ride.
The key features are:
Charts of the bets
1. The early failed break above 6,300. This sell signal
was enhanced as it came in early in the session, early
in the week and the action was quite sharp. I sold the
market at this point by buying down binaries.
I am now going to look at the charts of each bet in
turn.
2. Despite this, the FTSE decided to probe back
above 6,300 and, no doubt, took out a few stops in
the process. The market’s job is to maximise trade
and when traders place stops they are showing their
willingness, although not their desire, to trade. The
market is happy to gobble up the business
regardless.
I will start with the bet I passed on: FTSE to end
down. Below is the five minute chart:
Back to the action…
Consider three traders...
They all enter at the same point but the first one gets
out because of a small pullback which gives him a
small loss. The second grabs an early (and small)
profit. But the third hangs in there and bags a big
profit.
You won’t need me to tell you which one is the
successful trader of the three, but they all entered at
the same price.
It would have made no difference if the third trader
had got in at a worse price - he would still wipe the
floor with the others as far as the bottom line is
concerned.
The worrying aspect is that traders tend to repeat
these behavioural patterns over and over again. Yet
is the difference that large?
FTSE 100 Index, 26th Nov
54 | www.spreadbetmagazine.com | July 2014
4. The FTSE then fell away and you can see that
a five-wave form developed.
Although I passed (as I did not want to pay 40 for
this bet) it was a clear winner and expired at 100 at
the close. I know many traders are happier taking
more certain profits and in this context the price of
a binary bet does reflect the probability that it will
be a winner. A bet at 40 can be said to have a 40%
chance of success. The art of binary betting is to pick
bets that cost less but still go all the way.
FTSE to end down
3. Up to around midday the FTSE seemed to be
stuck in a range between 6,270 and 6,300. At that
point it could have gone either way but I stuck with
my positions.
FTSE to end down
July 2014
| www.spreadbetmagazine.com | 55
A day in the life of a FTSE binaries trader
FTSE to end down >50
I paid 11.4 for the bet FTSE to end down >50 and I
would say the odds of a decline of 50+ points were
much higher than 11.4%.
That is where my indicators come in. If they have any
value they allow me to buy a bet at 11.4 where I think
the odds are nearer 50/50.
The chart below shows the five minute action on this
bet:
Of the three bets I am looking at this was the pick of
the bunch. Why? Because it went all the way to 100
and it was cheap to buy! It cost 11.4 and went up to
100 offering a return of 777% on the amount at risk.
A day in the life of a FTSE binaries trader
In fact, I generally prefer bets like FTSE cash low to
be <-100 because as soon as the FTSE hits that level
(i.e. sees a low more than 100 points below the prior
close) the bet expires at 100 and the profit is
secured.
FTSE cash low to be <-100
The chart below is of our final bet FTSE cash low to
be <-100 and this bet gave plenty of profit potential
but did not go all the way.
A bet FTSE to finish… is always less certain as
whatever the FTSE might do during the day, its
actual close is always uncertain. For example the
FTSE may go 100 points down and then close 10
points up.
I bought in at 8.9 and you can see from the chart that
the bet went up into the 30s just after 4pm. That is a
potential return of around 200% on the risk incurred.
All in all a good day’s trading on the FTSE which illustrates quite well the way in which I approach markets. I did not get out at the best levels on either bet
but the end result covered the cost of those gold
earrings and I am most certainly not complaining.
For this reason I am more prone to take profits on
these bets at some point during the day – especially
above 80 (on a bought bet) I see no point in risking
60 odd points of profit just to try and get 20 more
and this is especially the case as the close looms.
FTSE cash low to be <-100
If you want to see the video clips I recorded as I did these trades please visit my website at www.johnpiper.info
Written by JOHN PIPER, professional trader and best selling author of THE WAY TO TRADE, BINARY
TRADING and BINARY BETTING
Email: [email protected] Web: www.johnpiper.info
FTSE to end down >50
56 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 57
58 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 59
www.t1ps.com
Three small cap stocks
THREE SMALL
CAP STOCKS
SET TO BENEFIT
FROM THE
HOUSING BOOM
By JAMES FAULKNER OF T1PS.com
60 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 61
www.t1ps.com
Three small cap stocks
Housing-related stocks have taken a knock of late as investors began to
worry about potential interest rate rises and policymaker intervention
intended to cool the housing market. For those who believe this is
simply a pause for breath before the next leg-up, we have put together a
selection of housing-related smaller companies where we believe
valuations to be attractive and prospects to be good.
The mainstay of British middle-class kitchens
everywhere, the Aga (AGA) cooker commands
significant brand loyalty and prestige. However, the
firm has plans to grow the brand overseas to push
international sales above 50% of the group total.
“It is also interesting to note
that although UK household
expenditure on cookers rose
by just 1% in 2013, Aga revenues
rose by 2.4% in the year as a
whole, suggesting the firm is
growing market share.”
The key challenge for Aga in recent years was the
collapse of the UK housing market in 2007-09. In 2011
the firm sold 11,000 ovens, almost half the 19,600 it
sold in 2007 before the crisis hit. This is
understandable given that people generally spend
as much money on their houses in the six months
after they move as they do in the next five years.
However, the incipient recovery in the housing
market has seen Aga bounce back, and the shares
look like they could have further to go.
Full year results for 2013 saw pre-tax profits come in
at £6.8m (before non-recurring costs), growth of 7%
year-on-year, with sales ahead by 2.4% but gaining
momentum in H2 at +4.4%. Operating profit was up
26.2% at £8.2m with margins recovering slightly, and
despite some reinvestment in sales and marketing
resources, cost growth was contained to c.1.5% on
the back of several savings initiatives. Despite an
inauspicious beginning to the year, with Aga
volumes down 2% in H1, volumes ended the year up
by an impressive 10%, with momentum said to have
continued into FY14. This was confirmed in May
when management confirmed that revenues in the
early part of 2014 rose faster than in the second half
of last year and that momentum was continuing in
the order intake. It is also interesting to note that
although UK household expenditure on cookers rose
by just 1% in 2013, Aga revenues rose by 2.4% in the
year as a whole, suggesting the firm is growing
market share.
62 | www.spreadbetmagazine.com | July 2014
I should say that Aga comes laden with a rather
large pension scheme, with assets worth £828.9m as
at the end of 2013 and outgoings set to peak after
2020 at just over £50m. This has been a source of
some concern for investors in the past, with the 2012
deficit of £165m being in the order of several
multiples of the then prevailing market capitalisation
of the company, although the deficit has since
declined to ‘just’ £35.8m as at 31st December 2013. In
November 2012 the company reached an agreement
with the pension trustees to hand over £16m, leaving
it to face no further payments until 2015. Pensions
accounting is complex, but it is worth noting that the
scheme had a surplus as late as 2007. The problem
here is that with interest rates at record lows, the
appraisal of the scheme’s liabilities has changed.
Were interest rates to rise – and there are obvious
signs that they soon will – this would ease the
pressure on Aga.
For example, broker N+1 Singer estimates that a
c.125-150 basis point rise in yields would eliminate
the deficit entirely.
If the recovery in the housing market continues, then
Aga could be in something of a sweet spot,
especially given the performance correlation
between Aga and mortgage approvals – which are
beginning to pick up but are still some way off their
pre-crisis peak. The story is one of cyclical recovery,
augmented by an enhanced product portfolio, with
operational gearing on the back of a leaner cost
base.
On the subject of upside potential, it is interesting to
note that 2013 margins of only 3.3% compare to the
company’s target of 10%. For 2014, broker
Canaccord notes, “if we take the 6% order intake
increase and translate this into revenue growth – this
is likely to be conservative given the acceleration –
2014 sales get to £265m (coincidently our forecast)
and apply a 35% drop through, operating profit
increases by £5.3m to £13.5m, which is higher than
our forecast of £12m.” The broker sets its price target
at 300p (10x “potential peak earnings” of 30p),
suggesting upside potential of almost 100%.
AGA CHART
July 2014
| www.spreadbetmagazine.com | 63
www.t1ps.com
House builders are looking a little shaky at the
moment as investors await interest rate rises and the
government and Bank of England prepare to clamp
down on ‘risky’ mortgages and tone down the Help
to Buy scheme. However, for those who remain
convinced that a housing recovery is becoming
entrenched, this could provide a short-term buying
opportunity in house building stocks.
Three small cap stocks
In fact, Telford is so confident it expects to double
profits again by 2018 and predicts cumulative
pre-tax profits to be in excess of £120m – a figure
around two thirds of the current market cap – over
the next four years. This suggests that the company
will be well placed to dramatically step-up returns to
shareholders in the coming years. Crucially, however,
Telford has been keen to point out that the vast
majority of its sales have been made without the
assistance of the Help to Buy scheme, so the
company is unlikely to face any problems should the
government decide to restrict the scheme in the
future, as now seems likely. In any case, the average
price of houses sold increased to £400,000, up from
£353,000 a year earlier, which helped raise
operating margins to 17.1% from 9.7% last year.
We believe one of the better placed but less
well-known stocks in the sector is Telford Homes
(TEF). This East London-focused house builder
recently reported a more than doubling of pre-tax
profit to a record £19.2m and an 83% increase in the
full year dividend to 8.8p per share for the year to
March 2014. The company’s forward order position is
nothing short of bulging, with 98% sold for the
current financial year and over 70% and 25%
pre-sold for the 2016 and 2017 financial years
respectively. Furthermore, visibility even stretches
out to 2018, when the launch of its Stratford Central
development (where 95% of the 157 open market
units were sold in just four weeks) also begins to
underpin profits from then on. The company
estimates that the pipeline was worth £875m in
future revenue at the end of March, up from £627m
a year earlier.
“The company’s
forward order
position is nothing
short of bulging, with
98% sold for the
current financial
year and over 70% and
25% pre-sold for the
2016 and 2017 financial
years respectively.”
64 | www.spreadbetmagazine.com | July 2014
TELFORD HOMES CHART
The strong (40%) increase in the development
pipeline and underlying house price inflation (which
was between 10-15% during the last year)
prompted broker Shore Capital to significantly
increase its earnings forecasts on the back of the
results. For 2015, it now forecasts pre-tax profits of
£23m, which equates to earnings per share of 30.3p.
Furthermore, it now sees earnings per share rising to
40p in 2016 and then to 46.7p in 2017, by which time
the shares could be yielding 5% based on a forecast
dividend of 15.6p. With its strong forward order
position and development pipeline, combined with
the structural backdrop of demand/supply
mismatch for non-prime housing in inner London,
Telford appears reasonable value on a current rating
of just 10.3 times with net cash of £4.8m on the
balance sheet.
When people buy houses they tend to want to fill
them up with nice shiny new things pretty much
immediately. The resurgence in consumer
confidence seen in recent months offers significant
growth prospects for companies like consumer
credit company S&U (SUS), which has built a
significant business on the back of the exit of a
number of major players from the direct unsecured
lending markets following the financial crisis.
Results for the year ended 31st January 2014 –
another year of record profits – saw pre-tax
profits grow by 21% to £17.3m in the year on the
back of revenues up by 11% at £60.8m, with
earnings per share up by 22% at 113.2p.
“Dividends per share
have now grown by 69%
since 2009, while cover
over that period has
increased from 1.56
times to over two
times.”
Growth in the loan book took net assets 14% higher
to £69.4m, and an additional £15m medium-term
borrowing facility saw total borrowings increased
to £32.4m from £20.6m, taking group gearing from
33.7% to a still conservative 46.6%.
A final dividend of 24p was declared, taking the
total dividend for the year to 54p, an increase of
17%. Dividends per share have now grown by 69%
since 2009, while cover over that period has
increased from 1.56 times to over two times.
July 2014
| www.spreadbetmagazine.com | 65
www.t1ps.com
At the divisional level, Motor Finance profit before
tax was up by 42% to £11.5m, driven by 26%
revenue growth and record collections quality. New
loan transaction numbers increased by 38% and live
customer numbers rose to 18,000. Meanwhile, Home
Credit profit before tax was slightly down at £5.8m
from £6.1m in 2013, which the company
described as a “creditable result” given lower levels
of consumer confidence in the first three quarters of
the year and benefit changes which mainly
impacted the first half.
This was accompanied by an improving level of
customer quality, as highlighted by current levels of
collections and arrears performance.
Shares in S&U have now been on an extended bull
trend since early 2009, but at the current 1,840p are
trading some way off the all-time high of 2,105p. The
business is now capitalised at £217.4m. With broker
Canaccord having pencilled in earnings forecasts of
151p and 192p for FY15 and FY16 respectively, the
shares trade on a prospective multiple of 12.2 times
falling to 9.6 times. The broker also expects a
dividend of 60p to be paid in FY15 rising to 66p in
FY16, which suggests a yield of 3.3% rising to 3.6%.
These metrics look reasonable value against the
company’s strong track record (earnings grew at
a compound annual growth rate of 16.6% between
2009 and 2013), prudent business model, and the
improving backdrop for the UK consumer.
S&U CHART
66 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 67
68 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 69
Zak Mir’s Monthly Pick
Zak Mir’s Monthly Pick
Zak Mir’s
Monthly
Pick
BUY LONMIN (LMI): ABOVE 230p
TARGETS AS HIGH AS 320p
Recommendation Summary:
Technicals:
Since gold and precious metals peaked out in the
autumn of 2011 one of the best ways of losing money
has been to try and find the floor in the wake of the
decade long bubble bursting.
As far as the technical picture is concerned it can be
seen on the daily chart that we are experiencing the
advanced stages of an extended bear run. This was
started by multiple resistance points in the £3.60 zone
last August, with a final failure in this area in November
confirming an extended period of weakness was on its
way.
Clearly, being attracted to stocks like Lonmin, that are
heavily geared to the fate of precious metals such as
platinum, is a way of gaining exposure in a highly
leveraged way to potential upside after the post 2011
losses for this asset class. Of course, as has been well
documented, we have seen shares of the South Africa
focused miner ravaged in recent months by the
particularly turbulent politics of that nation as a general
backdrop, as well as industrial action in its chosen
sector.
However, the buy recommendation for Lonmin shares
in July does appear to have the odds stacked in its
favour now that the strike is over and given that the
shares have not reacted as positively as some would
have hoped. With the stock still close to the lowest
levels of the past year, though finding stability, it should
be the case that those backing Lonmin now should be
able to reap decent rewards as the company returns to
some semblance of normality over the second half of
2014.
In terms of the position going into the summer of 2014,
it can be seen how we have already been treated to a
double bounce off the floor of a broadening
descending triangle formation.
“With the stock still
close to the lowest
levels of the past year,
though finding
stability, it should be
the case that those
backing Lonmin now
should be able to reap
decent rewards as the
company returns to
some semblance of
normality over the
second half of 2014.”
70 | www.spreadbetmagazine.com | July 2014
From the perspective of the bargain hunters it can be
said that the big plus, as far as June’s price action was
concerned, came in the way that the former May floor
at £2.33 was recovered so quickly after the temporary
trap below this level.
The implication now is that at least while there is no end
of day close back below £2.33 it is appropriate to look
for further upside. This is especially the case given the
way that even through the post August decline we have
seen a decent gyration for the shares within the
broadening triangle formation.
The latest double test of the triangle floor implies that
there could now be enough momentum in terms of an
intermediate recovery to take Lonmin back towards the
2013 resistance line, currently running at £3.20.
Cautious traders would be waiting on a fresh technical
catalyst, such as an end of day close above the 20 day
moving average at £2.52, or a break of the main RSI
resistance line from January running through the 45
level on a similar end of day close basis.
July 2014
| www.spreadbetmagazine.com | 71
Zak Mir’s Monthly Pick
Zak Mir’s Monthly Pick
The key points of the agreement are:
- Overall, the lowest underground basic salary will
increase by R1,000 per month for each year;
- Employees in C-band will receive increases of 8% in
year 1 and 7.5% for years 2 and 3;
- The living-out allowance will increase from R1,950 to
R2,000 per month in year 1 and be kept constant
thereafter for the period of the agreement;
- As is normal in backdated agreements, all employees
will receive, within 7 working days of their return to work,
the back pay due to them from their 2013 increase date
until 22 January 2014, the day prior to the start of the
strike; and
At Lonmin we have been looking at an extended and
complex crisis for the company since the start of the
year. The on / off nature of the industrial dispute and
the false dawn endings have not helped. But it could
very well be that this ongoing uncertainty is actually the
factor which causes those who are short of Lonmin to
get hit hard when the newsflow finally turns and stays
positive.
It remains to be seen how much the final tab will be in
terms of the cost of the strike and what action may be
required on the part of company. But it is notable that
Lonmin has had to suffer a total closure of its operations
as compared to only around half for rivals Anglo
American and Impala Platinum Holdings.
- Going forward, the Company has agreed to alter the
anniversary date of its annual wage increases for all
non-management employees to 1 July from 1 October
in order to align with industry peers.
Fundamentals:
In terms of the fundamental argument in favour of
Lonmin, it may be worth asking the obvious question
and attempting to get it out of the way before focussing
on the nitty-gritty of this situation.
LONMIN CHART
Recent Significant News:
Metal Miner 24th June
The three-year agreement, which is effective from 1
October 2013 to 30 June 2016, will end the
five-month strike, which has crippled the South
African platinum industry.
South Africa’s platinum mining strike is finally
ending after a five month work stoppage. The strike
by roughly 70,000 platinum workers wrought
massive damage - to the bottom lines of companies,
to the lives of workers and to South Africa’s fragile
economy. Platinum producers said they lost more
than $2 billion in revenue since the strike started,
while workers lost nearly $1 billion in unpaid salaries.
Mining analysts say it will take at least three months
to get production back to the prestrike levels. The
world’s three-biggest platinum producers - Anglo
American Platinum, Impala Platinum Holdings and
Lonmin PLC - said they each lost around a third of
their annual production.
RNS Statement 24th June
Lonmin announces the settlement of the
negotiations with the Association of Mineworkers
and Construction Union (“AMCU”) about wages
and conditions of service. Employees are expected
to return to work on Wednesday 25 June.
72 | www.spreadbetmagazine.com | July 2014
Commenting on the signing today Chief Executive
Ben Magara said: “The signing of today’s agreement
brings to an end the extreme hardship suffered by
all stakeholders, the country, our communities,
suppliers and in particular our employees, over the
last five months. We believe that signing this
agreement with our majority union is the only way
forward in re-building our business.”
“The nightmare scenario
is that the R word will
unveil itself. However, it
could very well be that a
rights issue to secure the
financial position may
turn out to be the most
bullish factor which
appears this year.”
Given all the strife in South Africa in terms of
industrial relations and politics as a whole, why would
mining companies allow themselves to be so vulnerable
by operating there on such a grand scale?
Of course, historically, the rewards here have been
massive. So the answer may be that at this point in the
cycle, where precious metals have been on the back
foot for so long, even industrial action costing nearly $2
billion to date may be a price worth paying for those
involved in this lucrative space.
The nightmare scenario is that the R word will unveil
itself. However, it could very well be that a rights issue
to secure the financial position may turn out to be the
most bullish factor which appears this year.
But as was suggested in the recommendation
summary, a buy bet on Lonmin is more than just a play
on a bombed out mining company. It is also a general
long call on the underlying asset class of precious
metals coming back into fashion after a severe
retracement over nearly three years.
Given how highly geared mining companies tend to
be in relation to what they pull out of the ground, one
would expect a decent bounce here anyway in the wake
of recent geopolitical issues resurfacing both in Ukraine
and particularly in Iraq.
Precious metals remain a favoured safe haven, and this
is an effect which may be exaggerated over the summer
of 2014 given how U.S. dollar strength and QE tapering
fears have tended to keep a lid on the upside so far. This
is not expected to be a state of affairs that continues
for much longer, as the sharp spike for gold back above
$1,300 illustrated very well in June.
July 2014
| www.spreadbetmagazine.com | 73
WHEN THE RISKS
ARE HIGH, TRUST
IN WHAT’S FIXED.
Our spreads have been continually fixed during trading hours since
2012, giving you consistent pricing however volatile the conditions.
Not all spread betting companies can say the same.
Apply for an account today capitalspreads.com
Losses can exceed deposits.
Spread Betting I CFDs I FX
Master the up and down.
Capital Spreads is a trading name of London Capital Group Ltd, which is authorised and regulated by the Financial Conduct Authority.
74 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 75
Sporting Index
World Cup Update
SPORTING INDEX
World Cup
Spread
Betting
Update &
The Open
Preview
76 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 77
Sporting Index
World Cup Update
As I write this on Friday a pang of sadness comes over me. For today is the
first time that we haven’t had a World Cup game since the tournament
started. It does at least give fans, bettors and the traders at Sporting Index
24 hours to draw breath after a phenomenal start to the tournament.
There have been goals aplenty – 137 in fact after the
group stages. Sporting Index predicted there would
be 158 goals in the whole World Cup – that has now
been pushed right up to 175.5. There were 18 games
in the group stage in which one team scored at least
three times.
It was a bitterly disappointing campaign by England.
I had advised selling their team total goals at 5.1 and,
having hit just two in their three games, a profit was
secured. The Italy game looked even more winnable
in hindsight, with both the Costa Ricans and
Uruguay taking three points off the Azzurri.
The stars have shone too. Thomas Mueller is on
course to become the first man to win the Golden
Boot at two World Cups. His haul of four has been
matched by the magician Lionel Messi and Brazil’s
star man Neymar at the time of writing.
The Colombians were put up as having a live chance
and they stormed their group, taking nine points
and making light of suggestions they’d struggle for
goals without their star man Radamel Falcao,
hitting nine without him.
I wasn’t keen on the chances of the hosts Brazil
pre-tournament and, even if they have come
through a tough game with Chile, the pressure will
be cranked up to fever pitch and the Selecao have
hardly given the impression they have relished it so
far.
Argentina have long been my idea of the winner
but, without the goals of Messi, they would have
struggled to qualify from a weak group. Sergio
Aguero is now injured and wasn’t sparkling anyway.
I’m assuming they will have beaten a Luis
Suarez-less Uruguay by the time you read this and
they will be a match for any side.
But how best to profit as Brazil 2014 reaches the
business end? While total goals buyers in matches
have taken the boys in Kennington to the cleaners –
the average of 2.85 goals a game smashing the 2010
haul of just 2.3 in South Africa – expect defence to
come to the fore as teams vision themselves taking
glory.
It’s a high-class last-16 and assuming the big guns all
make it through, matches will surely be far tighter
with so much at stake. Selling total goals and also
buying the time of the first goal at around the 30
minute mark in matches could be a profitable
strategy as countries look to keep it tight early on.
We all love shocks, and you’d have got fantastic
odds on holders Spain, four-time winners Italy, dark
horses Portugal and serial underachievers England
all being dumped out in the first round.
Costa Rica started the tournament with the
lowest spread of all the 32 teams on Sporting
Index’s Outright 100 Index, but defied the odds to
top the ‘Group of Death’. Ahead of their
second-round tie with Greece, shrewd punters who
took a chance on the plucky outsiders know they
had made a profit of 22 times their stake before a
ball had even been kicked.
78 | www.spreadbetmagazine.com | July 2014
“Selling total goals
and also buying the
time of the first goal
at around the 30
minute mark in
matches could be a
profitable strategy
as countries look to
keep it tight early on.”
“It’s a high-class
last-16 and
assuming the big
guns all make it
through, matches
will surely be far
tighter with so
much at stake.”
France should have eased past Nigeria by then and
it’s worth having a small buy of Les Blues for
outright glory as they look a totally different side to
the one that finished bottom of the pool four years
ago amid internal strife.
Switzerland were battered by France but there were
encouraging signs in their other two group wins and
they’ll give Argentina a game.
Remember, with sports spread betting, losses may
exceed your initial deposit or credit limit.
July 2014
| www.spreadbetmagazine.com | 79
Price subject to fluctuation. *New clients only, T's & C's apply, account opening subject to suitability checks.
SPORTINGINDEX.COM/WORLDCUP
LIONEL MESSI
ISN’T THE ONLY
GAME-CHANGER
ARGENTINA WORLD CUP GOALS:
10.8-11.2 (6 FROM 3 SO FAR)
Think the World Cup couldn’t get any more exciting? Follow the rest
of it with a sports spread bet and completely change the way you
watch the game. Trade Argentina Tournament goals at 10.8-11.2
(6 from 3 so far) and try keeping your emotions in check every time it's
buried into the top corner and you've bought goals (or every time it's
tipped over the bar and you've sold). And that’s just one of loads of
markets on all remaining teams. World Cup excitement guaranteed.
Open an account and we’ll
give you a free £250 bet after
placing 3 bets risking £20
each and another free £250
bet after placing 5 more.*
.COM
80 | www.spreadbetmagazine.com | July 2014
Losses may exceed your
initial deposit or credit limit.
July 2014
0
0
5
£
EE
IN FR
*
BETS
| www.spreadbetmagazine.com | 81
Sporting Index
Subscribe
Don’t miss out!
Sports spread betting
on The Open
Golf spread betting with Sporting Index guarantees
excitement and you will be glued to the action right
until the final putt.
Here are a few of the most popular markets for The
Open at Royal Liverpool Golf Club, Hoylake which
tees off on the 13th July.
Leaderboard Index
A prediction on where every player in the
tournament will finish. Points are awarded on the
following basis: 80pts if the player finishes 1st, 40pts
for 2nd, 30pts for 3rd, 25pts for 4th, 20pts for 5th,
15pts for 6th, 10 pts for 7th and 5pts for 8th.
Even leading players will be available at a
reasonable spread. Recent US Open winner Martin
Kaymer will be well-fancied to double in July and if
he turns up in the same form he will be worth
supporting.
Finishing Position
This market allows you to bet on where every player
in a tournament will finish right from first place to
bottom place.
If you thought he would finish higher than 21st, you
would sell, and if you thought he would have a poor
tournament you would buy.
Hotshots
How many points a selected group of golfers will
get in a tournament. For example, we might lump
together the four top European golfers in a
Hotshots bet at The Open.
Points are usually awarded based on the following:
25pts per named player finishing in the top 10, plus
a 50pts bonus if any of the named players wins the
tournament.
My Bankers
Simply pick three players for a specific round. 50
points are awarded if all three of your chosen
players win their matches and 10 points per chosen
player that wins by four or more strokes.
Winning Score
A prediction on the winning score at the end of a
tournament.
Sporting Index might make the spread for The Open
278- 280. If the winning player hits 68, 69, 64 and
70, they would make-up 271.
For example, for The Open, Phil Mickleson might be
21-24. This means Mickelson is predicted to finish
22nd or 23rd.
82 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 83
The Best of the Evil Diaries
“I cannot imagine anybody buying shares in
Foxtons or, as it happens, any other agency
which is confined to this country - it’s not just
bad in London. As regards the timing of a short, I
am rather less certain.”
In the same vein, he also predicted the end of Asil
Nadir’s infamous Polly Peck fraud. A big man with a
bigger reputation, Evil Knievil famously made £1mn
by short selling shares in Northern Rock during its
collapse. He also uses his knowledge and experience
to buy shares, often resulting in the same
devastating effect.
Three times a week Evil provides his thoughts and
musings on the markets only at
theevildiaries.com He doesn’t just deliberate about
the financial markets on The Evil Diaries but also
comments on politics, current affairs, which horses/
sports bets are his latest favourites, with the
occasional film and book review thrown in for good
measure.
As a result, I cannot imagine anybody buying shares
in Foxtons or, as it happens, any other agency which
is confined to this country - it’s not just bad in
London. As regards the timing of a short, I am rather
less certain.
I think it is also tempting to short housebuilders but
the backdrop of this industry is that, given this
country’s mad policies on housing, there is a role for
these companies to solve matters. So I’ll leave these
alone.
Here we take a look back on the highlights of Evil’s
diaries in the month of June
2nd June 2014
THE BEST OF THE
Evil Diaries
The man the Daily Mail dubbed “The King of the Short Sellers”, Evil
Knievil (aka Simon Cawkwell) is Britain’s most feared bear-raider.
He mostly famously exposed the fiction that were the accounts
of Robert Maxwell’s Communication Corporation, an event which
helped to earn his pen name.
84 | www.spreadbetmagazine.com | July 2014
After a long delay, Ignacio Salazar, CEO of
Orosur (OMI), has declared that he bought last
Friday 150,000 ordinaries at 24 cents Canadian. I
know he thinks the shares very cheap since he told
me that this is his view. And unless I am completely
bonkers it is entirely reasonable to decide merely on
published figures that the shares are cheap.
Orosur is capitalised at around £11m. But it must be
making getting on for that sum in pre-tax profit,
which in turn is represented by hard cash. To be sure,
there is a central overhead of $10m for overheads
and there are cash drains in the unproven projects
and, now, Colombia. But shareholders can
reasonably look forward to a thick dividend - I will
not be the only fellow calling for cash.
9th June
4th June 2014
Green Dragon Gas (GDG) are now capitalised at
540p at £770m as against net assets, reported
today, as at 31st December 2013 of c. £360m. One
is asked to believe the realisability of these assets. I
do not.
I have never taken Foxtons (FOXT), surely the most
aggressive agency operating in central London,
seriously. Even though others have. Yesterday, its
CEO resigned, having trousered a huge sum. I can
see it from his point of view: the central London
market is dead. And are you surprised?
Tangiers Petroleum (TPET) is edging up again, now
17.5p. We are now only days away from a drilling
result. Given that the punters have recovered their
courage - just look at Leni Gas (LGO)’s revival Tangiers might move a lot higher. A dry well would of
course have quite the opposite result....
July 2014
| www.spreadbetmagazine.com | 85
The Best of the Evil Diaries
The Best of the Evil Diaries
11th June
I bought Concha (CHA) in a placing about five years
ago (when it sported another name). I paid £25,000
then. Yesterday, I sold out for £17,000 and I reckon I
got a jolly good price at 2.15p. There is a few pence
in the balance sheet and a whopping £25m in hope
value. It is surely impossible to see this valuation
justified and the price must collapse when the
placing deal is announced. To me, this is a clear
virtually risk-free short.
13th June
I still do not understand what is going on at Clear
Leisure (CLP). Does anybody?
Just to stay in the swing I yesterday bought 100,000
Gulf Keystone (GKP) at 75p. I am no judge of these
extraordinarily labyrinthine developments in the
Middle East but it does seem as if Kurdistan is doing
quite well. That’s bullish for Gulf Keystone. My only
regret is that I forgot that Gulf Keystone has
upgraded to a full listing which meant stamp duty.
Grrrrrr.... I kissed goodbye to them this morning at
83p.
This really may be the moment to buck the trend in
that, although floated at 226p and now at 186p (and
therefore likely to suffer the great hangover of
failure), there is a compelling case to get involved.
MySale does not take stock positions and is
inherently well placed to shift huge lines of stock at
healthy margins. I am no admirer of Sir Philip Green
but I have to hand it to him here. It really does look as
if he is on the right path. I bought 25,000 at 182.5p.
20th June
I took 20p profit on MySale (MYSL) by selling at
201p. But I doubt that that was the correct approach.
The fact is that The Mashley and Phil are very thick
pals. Further, The Mashley is the UK’s finest retailer
(or so I am told). He thinks MySale will work.
(Otherwise he would not have bet.) MySale is
therefore probably still a good long term bet and,
most unusually, may go above the flotation price of
226p.
16th June
20th June
The chart service compels a purchase of gold, now
$1,280, and a short of EUR/USD at 1.352.
I am well ahead on Ascot and therefore playing with
the bookmakers’ money. I have therefore plunged on
Adelaide in the 3.45 and taken £20,000/£50,000. I
am told that this is a gimme.
I got £11,000 Vialogy (VIY) (10m at 0.11p) in the
recent placing and think that a sale now at 0.16p is
probably premature. The climate for biotechs is
undoubtedly good.
18th June
Finally and most exceptionally - for I am not a
vintner - those of you who fancy very good claret
should instantly go to Vineyards Direct and grab an
offer of Pauillac 2012. It’s circa £250 a case and will
need to be stored for at least two years. But this is
real value and therefore justifies a place in this
column.
What may be interesting amongst all the online
flotation failures is the case for MySale (MYSL).
For a free 1 month trial to Evil’s Diaries sign
up via the advert overleaf.
I shorted 50,000 Globo (GBO) at 57p since I reckon
that it has recovered enough. We’ll see.
86 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 87
Robbie Burns’ Monthly Trading Diary
Providing direction
for your investment
ROBBIE
BURNS’
monthly trading diary
Hurrah! It’s holiday time! I’m off with my
family for a road trip around California,
so I won’t be in the next two issues of
the mag but will be back in October.
Awwww. Missing you too! That’s too, not
two. This mag has a big readership you
know.
Benefit from our award-winning services and let
our team help provide direction for your investment.
OUR PRODUCTS
• Shares
• Fixed Income
• CFDs
• FX
• Futures and Options
• Physical FX
OUR SERVICES
• Advisory
• Execution Only
• Market Analysis
• Optimise
• Platinum
• Strategise
020 7264 2360 | www.css-investments.com
88 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 89
Robbie Burns’ Monthly Trading Diary
Robbie Burns’ Monthly Trading Diary
I don’t personally expect to get up to much trading this summer as our market will be nearly
closed by the time I wake up in the US. However, I have noticed some interesting companies
that have recently come down 30% or more off their highs. That is, quality companies that
have been hit for, I think, temporary reasons.
So I’ve been buying some of these, expecting to hold them over the summer while they
recover.
So here is my list of potential summer recover play sizzlers! I’ve already snapped them all
up as I write except for Asos, where I am still waiting.
1
Telecom Plus
This has fallen a long way from its high, but looks
a great one to snap up near recent lows for
potential big returns. It provides utilities, phone
and broadband services sold by independent
distributors. The company reckons profits will be
up to £63m soon – a big jump.
TELECOM PLUS CHART
90 | www.spreadbetmagazine.com | July 2014
2
There’s a nice dividend too. Customer service
is highlighted as excellent by Which? Magazine,
and the company is bullish on its prospects
after recently buying its energy customers from
N Power, enabling it to ensure a leap in profits. If
it ends up being a cold winter, watch for massive
gains by next summer.
Asos
Well, I’m sure you all know what Asos does – sells
clothes on the internet. It was the darling of the
market until recently and it has more than halved
quite quickly on the back of two profit warnings.
There was a fire at the warehouse too but this
didn’t seem to really affect the shares given the
firm was fully insured.
The rate of the decline is stopping and it looks
like it is getting time to buy what is a brilliant
company, somewhere at a near long-term low. A
rise in Sterling did some of the damage – that
won’t last forever – and, with its strong brand and
cash generation, this looks like a perfect buy for
great gains to come.
ASOS CHART
July 2014
| www.spreadbetmagazine.com | 91
Robbie Burns’ Monthly Trading Diary
3
Robbie Burns’ Monthly Trading Diary
4
Iomart
Cloud computing group Iomart looks very cheap
after coming back quite a bit from its highs. It
is considered a high-tech share, but is not on a
massive tech rating, and at least there are real
profits which are climbing sharply.
IOMART CHART
92 | www.spreadbetmagazine.com | July 2014
Indeed, I thought Iomart’s recent statement was
excellent, with adjusted profit before tax growth
of a very decent 37%. With a dividend up 25%
and a company that is generating good cash
flow, now looks a great time to get in.
Vectura
Vectura is a drugs company well down from its
highs, giving investors the chance to get in at a
great price as its future is solid. It has a superb
pipeline of products, specialising in drugs and
inhalers to help those with airway related
diseases.
The company also has partnerships with all the
main drug distributors and recently got a £10m
payment from Glaxo. A lot of its drugs and
products have been receiving approvals in
various countries so this one looks a potential
giant in-the-making, and at this price is well off
its highs so looks one to pick up.
VECTURA CHART
July 2014
| www.spreadbetmagazine.com | 93
Robbie Burns’ Monthly Trading Diary
As they say, please do your own research on
these shares. I would also point out there is a lag
between me writing this and you reading it. So
be aware that they may have already gone up
(hope so!) or perhaps went down some more –
giving the potential for even bigger bargains.
That’s because you can set a stop loss to get
you out if you’re catching a falling knife. If you’ve
got it right and they keep on recovering, you can
then just hold on. Perhaps one way of doing it
would be to buy a far quarter, such as December,
on the spreads.
When you’re buying recovery stories, spread
bets can be a great way of doing it.
Have a great summer and see you again when
the days start to shorten!
In the meantime if you want to read more by me, the good news is that the new
edition of my book “Naked Trader” has just been published! You can get Naked
Trader 4 only from my website over the summer and from Amazon from September.
The book updates Naked Trader 3 which I wrote in 2011 – a lot has happened in the
market since then and I cover all the changes. There are tons of ideas, trader stories,
psychology, biggest trading mistakes and 20 trading strategies to make money.
It’s only £14.99 and the first 500 who order it get a free pack of Naked Trader T-bags
made from only the best tea!
To get
ader
Naked Tr
e
4 click th
he
book to t
left
94 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 95
Anton Kreil
How NOT to be the Monkey in the Market
Anton Kreil
How NOT to be
the Monkey in
the Market
part 2
Following up on last month’s interview with Zak Mir, Anton Kreil gives more
valuable information on how not to be a monkey in the market by doing the
opposite of what you are told to do by the brokers.
96 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 97
Anton Kreil
Over the last three years the Institute of Trading
and Portfolio Management have been delivering live
trading seminars to thousands of delegates around
the world. Initially with a focus in the U.K. the
Institute has grown quickly to deliver their online
educational programme the Professional Trading
Masterclass (PTM) Video Series, teaching thousands
more people around the world the real truths behind
the retail trader industry and also how they can
become successful in the long term.
The Institute has worked tirelessly over this period to
bring this to people’s attention by completing over
one hundred and fifty live seminars globally and by
delivering the truth about the industry to thousands
of people. Now you can get the truth too! The
knowledge that the Institute has will simply shock
you and change your entire approach to trading the
financial markets. Here are a few observations from
our “Don’t be The Monkey in the Market” free
education document.
Doing The Opposite
What all beginner traders should be doing is the
opposite of what retail brokers tell them. You should
not be opening trading accounts with miniscule
deposits and leveraging one hundred times to trade
FOREX and ten times to trade stocks, sector
products, indices and commodity products. What
you will find is that if you want to open a CFD
trading account, then you will need more money
to do so (usually £5,000-£10,000) and to open a
spread betting account you may need as little as a
few hundred pounds.
How NOT to be the Monkey in the Market
Trading a product that also has no tax liability if you
win is also tempting. However, the numbers speak
for themselves, with 90% of retail traders losing 90%
of their money within 90 days.
The responsible approach and the approach that all
professional traders take is to not abuse
leverage and understand how their liabilities look
from the outset. The sweet spot of leverage is four
to five times what you deposit on margin
(equities) and six to eight times (FOREX).
However, what you deposit on margin should be a
decent amount of money. This amount should be
north of £10,000 ($16,500) in the UK and $25,000
plus in the United States.
Professional traders know that when you start out in
trading you must start in the same way as those who
have multiple years’ experience. The parameters you
must stick to are simply numbers and the numbers
are unemotional. If you break these parameters you
run the risk of being in the 90% because you are
doing what the broker wants you to do. Depositing a
small amount of money, over leveraging and
basically attempting to gamble your way to a level
where you intend to “do it properly” simply won’t
work. You just have to do it right from the outset.
“The responsible
approach and the
approach that all
professional traders
take is to not abuse
leverage and
understand how their
liabilities look from the
outset.”
You will spend the rest of your life (or until you
realise it doesn’t work), opening spread betting
accounts with small amounts of money and
gambling it to zero. This is something professional
traders call “The Dumb Money Merry Go Round”
or in this edition the “Monkey Merry Go Round.”
You must open your trading account with a decent
amount of money (in the UK over £10,000 and in the
US $25,000+). This will allow you in the first instance
to have £50,000 ($75,000) exposure and
significantly reduce the chances of you losing
money and massively increase your chances of
being profitable. There is a minimum requirement in
terms of capital that is essential in terms of enabling
you to take a professional approach. We are being
responsible by telling you this!
iii) Don’t open a spread betting account before
proving you can make money consistently. Spread
betting was invented in the 1970s by Investors Gold
(IG) Index for the retail market and is now provided
by multiple vendors / platforms. No professional
traders spread bet or use spread betting platforms.
It is a product that is 100% designed for the retail
market, to enable them to open small trading
accounts so they can gamble in the financial
markets. CFDs were invented for hedge funds
primarily, by Merrill Lynch, in 1992. They are an
institutional level product. Hedge funds are offshore
investment vehicles and do not have tax liabilities
anyway, so they don’t care about spread betting.
CFDs do everything for them.
98 | www.spreadbetmagazine.com | July 2014
Don’t Be the Monkey in the
Market (Edition 1)
If you would like to apply for the Institute
of Trading and Portfolio Management’s
full “Don’t be The Monkey in the Market”
(Edition 1) Free Education Document
CLICK HERE
Professional Trading
Masterclass (PTM) Video Series
i) Getting a professional trading education from a
real professional trader (not a broker or a broker in
disguise - aka a “trading educator”). Both have an
agenda and it creates conflicts of interest. See
Edition 1 of the “Monkey in the Market” for more
information.
ii) Not opening a trading account with a small amount
of money and having a pre-determined number in
your head, which when you reach you intend to start
trading “properly”. You will simply lose and the
broker will win.
If you want to learn how to really win in the financial
markets and stand the best chance of being
consistently profitable in the long term, then you are
going to have to learn how to trade in the same way
that real professional traders do. You are faced with
a necessary evil. Retail traders have no choice but to
use retail broker platforms in order to access the
financial markets with leverage. However, you can
access these platforms AND do everything in the
opposite way in which most brokers and trading
educators want you too. You need to contact the
nstitute of Trading and Portfolio Management today.
We will show you how to do this and much much
more….
Please ensure you enter all of your details
correctly, including your email address
and phone number. Please also make sure
that you include the text “Don’t Be the
Monkey in the Market” in the message
field.
Doing it right involves three things:
This is one of the broker tricks to distract you from
what is important. Opening a small account is more
tempting than opening a decent size account.
Using the broker’s leverage as much as possible is
also more tempting because it’s their money not
yours.
When you have proven this to yourself, spread
betting may be an option. But not before. You will
have a capital gains tax liability if you are a UK
resident, however this is a small price to pay in order
to ensure that the odds are stacked in your favour
from the outset and that you have actually
discovered that you are a profitable trader.
As a retail trader you must emulate the professional
trader, trade with CFDs first and prove to yourself
that you can make money consistently in the
financial markets.
In order to take advantage of the current
prices of the PTM Video Series, please go
to www.instutrade.com/education/ and
enter the code “sbmjuly” in the promo
code areas of either the 1 month or
Lifetime Access options. As a Spreadbet
Magazine reader you will be eligible to
receive 10% off the current prices. This
10% discount code will expire at midnight
on 31st July.
July 2014
| www.spreadbetmagazine.com | 99
Best of the Blog
best of
the blog
JUNE 2014
100 | www.spreadbetmagazine.com | July 2014
Best of the Blog
Visit www.spreadbetmagazine.com/blog
for our latest calls on global markets
July 2014
| www.spreadbetmagazine.com | 101
Best of the Blog
Best of the Blog
TITAN INV PARTNERS – HEDGE FUNDS AND WHY SIZE
MATTERS (THE RARE OCCASION WHERE SMALLER IS
BETTER!)
QUINDELL PORTFOLIO – LUCIEN MIERS V RICHARD
JENNINGS OF TITAN INV PARTNERS
ROB
TERRY
Hedge funds! The very words conjure up images of
rocket scientists and tough talking traders in busy
dealing rooms, surrounded by multiple screens and
plenty of spondoolies. While those stereotypes are
still probably not too far from the truth, the reality is
that for many hedge fund managers the glory days
seem to be over.
The downturn in the fortunes of these latter day
“masters of the universe” can be traced back to the
financial crisis that developed in the wake of the
collapse of the US subprime mortgage market and
associated securitised products. This in turn triggered
a collapse in global liquidity which came to be known
as the credit crunch or “Great Financial Crisis”.
On the face of it, the hedge fund industry appeared to
have weathered the global financial storm very well,
with assets under management reaching a new peak.
One could argue that it was not a mess of their
making and, indeed, in several well documented
instances (and presumably in many less well known
cases), hedge funds and their managers made
handsome profits from the crisis, as shrewdly placed
bets came good and then some. John Paulson and his
$4bn haul from betting against the US subprime crisis
being a prime (‘scuse the pun) example.
However, the world had been changed for good by
the events of 2007/2009 and we now sit with a very
different investment and economic landscape to
contend with. It is true that the liquidity gap that
brought the global economy to a virtual halt in 2009
has been resolved (but not the debt hangover which
still sits there like the elephant in the room), but this
has been rectified by the all-powerful central bankers
through the continued pumping of fiat money into the
system in re liquefying the commercial bank and
trying to inflate some of the debt away.
http://www.spreadbetmagazine.com/blog/titan-inv-partners-hedge-funds-and-why-size-matters-the-rare.html
102 | www.spreadbetmagazine.com | July 2014
I have just read the so called short seller Lucien Miers’
latest missive on Quindell Portfolio in which he states
that he has increased his short position in the stock. I
am a happy and willing counterpart to that particular
trade at the current price!
At the present stock price of 13.75p I fancy that this
week’s AGM will be an opportunity for management
to set the record straight on a number of points, and
that there could actually be a decent rally around the
corner with sellers appearing to be exhausted in
recent days.
Having actually read the lengthy Gotham missive, I do
believe that there are indeed some very serious points
within there that will take some difficulty on the part
of QPP’s management in answering; the cash
conversion issuing being the primary problem for the
bulls. The next 6 months will illustrate whether the
revenue receipts do actually convert into cash…
What I do believe, however, is that at this level the
upside looks more than the downside to me and so
I have taken a modest personal position on the long
side at 13p.
Additionally, this quote here only two months ago, if
untrue, will either have Rob Terry’s head rolling or he’ll
go to prison if it is blatantly fraudulent: “the Board is
confident that the upper end of market expectations
should be achieved for the full year for 2014 and that
current expectations for cash generation shall be
exceeded in 2014. It is now clear that in due course, the
opportunity to deliver a multi billion pound business
generating significant profits with associated positive
cash flows is within our grasp, subject to leveraging
the significant market lead available to Quindell.” I do
not believe Mr Terry to be that stupid.
http://www.spreadbetmagazine.com/blog/quindell-portfolio-lucien-miers-v-richard-jennings-of-titan.html
July 2014
| www.spreadbetmagazine.com | 103
Best of the Blog
Best of the Blog
JAMES FAULKNER ON SPRUE AEGIS – SMALL CAP
OF THE WEEK!
This week’s small cap is a company we originally
looked at on the t1ps.com website when it was listed
on ISDX and trading at just 103p to buy. It recently
made the move to AIM and the shares are currently
switching hands at 251.5p. That said, we believe they
are still worthy of investors’ attention, even after the
dramatic rise in the share price over the past year or
so.
The Business…
Founded in Coventry in 1998 and listing on the old
OFEX market back in 2001, Sprue Aegis has grown
over the years to become a leading supplier of home
safety products and manufactures one of the world’s
smallest carbon monoxide sensors for use in carbon
monoxide alarms. Products are designed in-house,
with the majority of manufacturing being outsourced
to contractors in China.
Its status as sole supplier to a number of major
retailers in the UK provides significant barriers to
entry, as do its 68 granted patents, further 27 patents
pending globally, and safety certifications for it
products from various regulatory bodies.
Sprue doubles in size and shows its force…
In April 2010 Sprue entered into a five-year agreement
with BRK Brands Europe (a subsidiary of consumer
products giant Jarden Corporation). The deal gave
Sprue the exclusive rights to distribute BRK’s range of
fire, smoke and related safety products and safes in
Europe, in return for a fixed distribution fee of £4.16m
per annum. This was a significant milestone for the
company, which at a stroke removed a competitor
from the market, secured entry into Europe and in
effect more than doubled annual sales.
ZAK MIR ON CRUDE AND THE OIL MAJORS
Although it feels like the situation in Iraq has gone on
for years, apparently it was only eight years ending in
2011. To date, the inspiration for Iraq, Vietnam, beats
this dead end situation by 11 years. However, as we are
learning, this is a situation which is set to run and run.
History tells us that nation building is a difficult art, as
is attempting to deliver democracy before the locals
(formerly known as “the resistance” now “insurgents”)
are ready for it.
From a financial markets’ perspective, all of this
suggests just one thing to start off with – Crude Oil is
rising. In fact, the commodity has been
delivering technical and fundamental false dawns for
many months now, with the dress rehearsal for a rally
being the Ukraine situation. That has cooled off for
now. But one would suspect that it will return in the
autumn when Russia’s leverage over gas in Europe can
kick-in properly.
In the meantime it can be seen on the daily chart of
front month WTI that we have been in a rising trend
channel which has been in place since December.
Arguably, one could have been long the commodity
in the wake of the January bear trap from below
November $91.77 support.
However, early bird bulls would have been treated to a
rather painful ride consisting of a gyration either side
of the 200 day moving average, currently at $100.17.
While the latest June spike through former March
$105.22 resistance has effectively ended this gyration,
it can be seen that the charting picture remains
complex. The ideal scenario is that there will now
be no end of day close back below the former three
month resistance and so WTI will head towards the
top of the late 2013 price channel at $110 over the next
two to four weeks.
From its initial product, the Fire Angel smoke alarm,
which fits into a standard ceiling mounted light fitting,
the company has built up a strong presence in the UK
retail and trade market as a supplier to the UK Fire &
Rescue Services, and has also made significant
progress in Continental Europe.
http://www.spreadbetmagazine.com/blog/james-faulkner-on-sprue-aegis-small-cap-of-theweek.html
104 | www.spreadbetmagazine.com | July 2014
http://www.spreadbetmagazine.com/blog/zak-mir-on-crude-and-the-oil-majors.html
July 2014
| www.spreadbetmagazine.com | 105
Knowledge | Wealth | Power
City Apprentice Programme
COMPLIMENTARY WORKSHOP
Receive a FREE eBook after completing your registration!
Visit:www.opescap.co.uk or call: 0203 675 8117
Risk Warning: Please note that Opes Associates Limited t/a Opes Academy is not authorised or regulated by the Financial Conduct Authority and as such is not permitted to offer financial or investment advice to UK resident investors, whether or not the intended investments are regulated or unregulated. We strongly encourage you to consult an FCA-authorised Independent Financial Adviser before committing to any form of investment. Trading and investing often involves a very high degree of risk. Past results are not indicative of future returns and financial instruments can go down
as well as up resulting in you receiving less than you invested. Do not assume that any recommendations, insights, charts, theories, or philosophies will ensure profitable investment. Spread betting, trading binary options and CFD's carry a high risk to your capital, can be very volatile and prices may move rapidly against you. Only speculate with money you can afford to lose as you may lose more than your original deposit and be required to make further payments. Spread betting may not be suitable for all customers, so ensure you fully understand the risks involved and seek independent
advice if necessary.
106 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 107
Book Review
Book Review
In this internationally renowned classic book there
is a multitude of information that traders can use
to their advantage in understanding the “herding”
nature of investing. Originally written way back in
1841, the observations by Charles MacKay of crowd
behaviour are as prescient today as they were over
150 years ago. A not-to-be missed book!
“In this
internationally
renowned classic
book there is a
multitude of
information that
traders can use to
their advantage in
understanding the
“herding” nature of
investing.”
BY CHARLES MACKAY
A person is intelligent; people are stupid. Whoever once said that must
have been referring to stock market manias. It’s an astonishing and
unsettling fact that, although first published in 1841, this book describes
trends and manias that are as relevant today as they were back then.
108 | www.spreadbetmagazine.com | July 2014
At the same time, Law created the Mississippi
Company, a French colony trading precious metals
in Louisiana. He had exclusive trading privileges in
the territory for 25 years, but needed funds to
kick-start the operation. He did this by issuing
shares and low-interest government bonds, which
also served to aid French finances. Shares in
Mississippi went sky high as people were drawn to
the lure of trading in gold and silver. People of all
classes jostled in the street outside Law’s dwelling,
hoping to get their names on the share register, and
soldiers had to be sent in by night to maintain order.
Pop!
Sure enough, the bubble became unsustainable and
burst. As Law issued more bank notes, the amount
of money in circulation caused the rate of inflation
to reach 23% per month at its peak. He devalued
shares in the Mississippi Company and, as people
began realising their shares as capital for the more
valuable coins, the price fell to its original value. This
sudden crash caused Law to become a hated man
overnight. His scheme had been flawed, but he had
genuinely been working towards the good of the
nation. It was the irrational speculation of the
people that led to the inflated price and ultimate
collapse.
Book Review
EXTRAORDINARY
POPULAR
DELUSIONS AND THE
MADNESS OF CROWDS
His scheme was a spectacular success – but a short
lived one – as it collapsed after a bank run in 1720,
plunging France into an economic crisis.
MacKay’s basic premise – that humans are
dominated by greed and fear when it comes to
money – states that you too will succumb to
temptation when it’s prevalent all around you. He
presents us with three episodes from the past where
entire populations have resigned themselves to this
madness, sacrificing their homes and committing
acts of violence, just for a piece of the action. The
dotcom boom of 2000 and the radio boom of the
1920s present similar stories.
Bubble trouble…
Perhaps the best known story is that of The
Mississippi Scheme which details the life of John
Law – the Scottish economist, gambler, banker,
murderer, royal advisor, exile, rake and adventurer
(and Evil Knievil’s ancestor). In 1716 he established
the Banque Generale, a state chartered bank with
the power to issue unbacked paper currency. He
believed that increasing the money in circulation
would benefit commerce.
“MacKay’s basic
premise – that
humans are
dominated by
greed and fear
when it comes to
money – states
that you too will
succumb to
temptation when
it’s prevalent all
around you. “In
understanding the
“herding” nature
of investing.”
July 2014
| www.spreadbetmagazine.com | 109
Book Review
“Mackay’s
narration is
intelligent and
detailed; he even
throws in a good
sprinkling of
witty anecdotes
(the sailor who
ate a prize tulip
bulb with his
herring
breakfast
thinking it to
be an onion and
spent months in
jail as a
result).”
Mackay’s narration is intelligent and detailed; he
even throws in a good sprinkling of witty anecdotes
(the sailor who ate a prize tulip bulb with his
herring breakfast thinking it to be an onion and spent
months in jail as a result). He goes on to describe
The South Sea Bubble, the sequence of events
during the same period in England; and
Tulipmania, the 1834-6 tulip bubble in Holland when
people would sell their entire estate to convert it
into a few bulbs. And before you laugh too loudly
at our Dutch friends, this book also points out how
Tulipmania spread to Britain and France (although
to a lesser extent).
There are common threads in each mania. The initial
run when that which is being advanced seems an
almost sensible proposition (after all, the internet
was going to transform the world and slash the
costs of doing business, wasn’t it?); the way that
each mania is heralded as a way to end poverty and
allow anyone to make money without actually
doing any hard work; and how each mania distorts
the economy such that productive industries are
damaged by the rush of capital to speculation.
110 | www.spreadbetmagazine.com | July 2014
The way to make real money in 1836 Holland was to
buy property from those desperate for capital with
which to speculate. And as each bubble bursts, we
see the start of the blame game with individuals,
institutions and, ultimately, governments attacked
by those who lost out.
With the horse miles away, the stable door is always
bolted. But man is too greedy to be stopped.
Where will the next boom and bout of collective
madness come from? Who knows? The thing about
manias is that it is hard to spot them until they are
well underway. But given man’s innate avarice, there
is no doubt that they will still be occurring for
centuries to come. This book should be compulsory
reading.
TO GET YOUR FREE COPY OF EXTRAORDINARY
POPULAR DELUSIONS AND THE MADNESS OF
CROWDS CLICK THE ADVERT TO THE RIGHT
July 2014
| www.spreadbetmagazine.com | 111
Currency Corner
Why I am strongly bearish on the South African Rand
CURRENCY CORNER
WHY I AM
STRONGLY
BEARISH ON THE
SOUTH AFRICAN
RAND
BY Samuel Rae
This month we introduce a new contributor, Samuel Rae, author of the
best selling book “Diary of a Currency Trader”. Having completed an
Economics BSc Degree in Manchester, Samuel Rae quickly discovered
that the retail Forex industry was for him. A short foray into the
corporate world drove him to search for an alternative to the more
traditional ways of making a living, and it was to the retail FX market
that he was drawn and found his calling. Through persistent market
participation and extensive education he has grown to become a
specialist in both fundamental and technical analysis.
Sam’s personal trading style combines classic
candlestick analysis with a simple, logical and risk
management driven approach to the financial
markets – a strategy that is described and
demonstrated in his Diary of a Currency Trader.
I do this simply because my strategy revolves
around price action at key historic levels, and I find
that, while obviously not 100% reliable, the key levels
I work with are much more entrenched in the highly
watched, liquid pairs.
Hello SBM readers! For those of you familiar with my
trading style and strategy, this piece may seem a
little out of place. All I ask, however, is that you bear
with me, as I believe that whatever strategy you
employ, the trade I am about to describe would fit
nicely into any medium to long-term portfolio.
Sometimes, however, I pull myself away from the
charts and take a look at what’s going on in the
wider world. For the fundamental traders out there,
and also for the chartists who like to keep up to
speed with what’s driving price action, it will have
been impossible not to have heard about the
ongoing mining strikes in South Africa. For the
uninitiated, here’s a quick rundown of what’s going
on.
The two currencies in question are the US dollar and
South African rand – USD/ZAR. This pair is
somewhat outside what you might call my close
family of crosses. I generally like to stick to three
majors – the AUD/USD, the EUR/USD and the USD/
JPY.
112 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 113
Currency Corner
Why I am strongly bearish on the South African Rand
“In short, the mining strikes have not just wiped 2% of South
Africa’s output from its balance sheet, but will also hurt
production in other industries as a result of decreased
disposable income and the waning demand that ensues.”
In the middle of January this year, about 70,000
miners walked out on their jobs at the three
largest platinum mining companies in the world –
Anglo American Platinum, Impala Platinum and
Lonmin – all located in South Africa. The three
companies produce more than 80% of the global
platinum supply, and the strikes immediately
impacted the price of the industrial metal. As time
has drawn on, however, markets have started to
recognise that the platinum market is just the
beginning. The major implications of the strike are its
impact on the South African economy.
The South African workforce totals around 18
million. The 70,000 workers out of circulation from
the miners’ strike account for approximately 0.4% of
this number. On initial sounding, this may seem small
but, when looked at in perspective, it’s
actually quite a large number. Large enough, at least,
to have a meaningful effect on a range of key
fundamental factors such as consumption and
production. In short, the mining strikes have not just
wiped 2% of South Africa’s output from its balance
sheet, but will also hurt production in other
industries as a result of decreased disposable
income and the waning demand that ensues.
As an average, over the past four to five years,
platinum mining generated approximately $4bn in
revenues in South Africa, accounting for just shy of
2% of the nation’s total GDP. As a result of the strikes,
this output has effectively been wiped from South
Africa’s balance sheet. What’s more, this is only the
beginning...
The reserve bank of South Africa boosted the
nation’s benchmark interest rate from 5% to 5.5% at
the beginning of this year. However, with the impact
of the strike hanging over the economy, it may be
necessary to loosen monetary policy and reverse
the hike in an attempt to mitigate any negative
effects. With this in mind, it’s extremely difficult to
be anything but bearish on the rand at present.
Unfortunately for me, I’ve held this bias since
somewhere around the middle of February. One look
at the daily chart will reveal my misfortune. Against
the backdrop of a weakening South African
economy, the rand has, perversely, continued to
strengthen versus its US counterpart. I thought my
luck had finally turned around on 13th March when a
bullish pin bar (circled) formed in the wake of some
considerably indecisive action just ahead of key
support at 10.6674 and the most recent swing low
of 10.5828. The following day’s action invalidated my
position, however, and the pair declined more than
4% further before finally finding what now looks to
be the longer-term turning point of key support at
10.2710.
“As soon as a signal
appears that concurs
with my strongly bullish
USD/ZAR bias, I will enter
long with an initial
target of yearly highs
somewhere between
11.3000 and 11.4000.”
So how am I looking to register a position? Again, for
those of you not familiar with my strategy, I
generally use traditional candlestick patterns to both
enter trades and dictate my risk management
parameters.
My favourite set up – the pin bar – is one I have kept
an eye out for over the past two to three weeks, but
as yet – no such luck!
A decidedly bearish version of the pattern formed
on Friday 13th, and in another pair I might well have
registered a small-scale short on the expectation of
a small correction. In this instance, however, my
fundamental bias (and not my predetermined
superstition as to the day in question) would not
allow me to do so.
As soon as a signal appears that concurs with my
strongly bullish USD/ZAR bias, I will enter long with
an initial target of yearly highs somewhere between
11.3000 and 11.4000. I believe there may be some
profit taking between now and then around the
11.0000 handle, and so I am more than prepared to
ride out a little bit of turbulence around this area if an
entry signal presents itself before price gets there.
All said, I feel like this trade is as close to a no-brainer
as you can get in these markets. I am a strategy man,
however, and will not allow myself to enter before a
price action signal suggests I should – so here’s
hoping.
To learn more about Sam’s travails in the world of
currency trading and what a “pin bar” is then click
to receive your FREE book on the advert after this
piece.
USD/ZAR CHART
114 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 115
116 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 117
Alpesh on the markets
Alpesh on the markets
Alpesh
on the Markets
WHAT MEN CAN LEARN FROM WOMEN
I write to you from Singapore, the financial centre made famous by the
trader Nick Leeson, the man who personified the excess, macho culture
of the trading world. Interestingly, have you ever noticed how there are
no trading or financial scandals involving women? No films have ever
been made about the “Fox of Wall Street”, have they?
I’ve just given a speech to a room full of
entrepreneurs and was struck by how many are
female – far more than I would have found in the
UK. In a room with about a thousand entrepreneurs,
about 40% were women. But this isn’t reflected in
the boardrooms of listed companies. There can
be little doubt about male dominance when only
around one out of a hundred of the UK’s largest
companies are headed up by a female CEO. Even
in the US, a similar lowly proportion of women head
up Fortune 500 companies.
These figures simply do not reflect the reality of
business ownership. Research shows that 46% of all
US businesses are owned by women. What’s more,
the girls seem to be pretty good at running
businesses too.
“a study from the
National Association
of Investors
Corporation,
completed over
ten-years, found that
all-female investment
clubs outpaced
all-male clubs by
producing 23.8%
average compounded
annual returns,
compared to 19.2%
for the male clubs.”
Employment at women-owned businesses is
growing by 18%, compared with 8% for all
companies, according to business magazine
Forbes. Also noteworthy is that US female
billionaires have an average net worth of £1.96bn,
compared with £1.45bn for the men.
So why in trading do women not rule the world?
After all, they make great investors as well as
entrepreneurs.
A number of studies show that women make better
investors than men. In a study of over 35,000
investors by the University of California, Davis,
portfolios run by women earned 1.4% per annum
more than those run by men. Indeed, single women
earned 2.3% more than single men every year.
Elsewhere, a study from the National Association
of Investors Corporation, completed over ten-years,
found that all-female investment clubs outpaced
all-male clubs by producing 23.8% average
compounded annual returns, compared to 19.2%
for the male clubs.
Poor male performance is often attributed to
over-trading, according to the study. Men trade
their accounts 45% more often than women. And
single men shuffle their holdings 67% more than
single women. Perhaps the adage about men’s fear
of commitment is true after all.
So what is it that women do in stock picking,
research and trading that produces better results,
and how can men use this knowledge to close the
gender gap?
118 | www.spreadbetmagazine.com | July 2014
Alpesh B Patel
Alpesh is a hedge fund manager who set up his asset management company in 2004. His
Sharescope Special Edition has outperformed every UK company’s fund manager over the past
decade, as well as Warren Buffett. He has written over 200 columns for the Financial Times and
presented his own investment show on Bloomberg TV for three years. He is a former Visiting
Fellow in Business & Industry at Oxford University and the author of 18 books on investing.
July 2014
| www.spreadbetmagazine.com | 119
Alpesh on the markets
After all, as a gender we are always ready and
willing to learn from women, aren’t we?
Firstly, save transaction costs by not churning your
portfolio. Men like to fiddle. Actually they love to
fiddle. It’s not a cliché. A UK cabinet minister, Gillian
Shephard, once told me that her male colleagues
always wanted to change laws. Always fiddling. In
trading this means changing the portfolio, being
premature in their actions, not waiting, watching
and seeing.
Secondly, men should spend more time researching
before investing. Fear of making a mistake is 50%
to 60% higher amongst women than men,
according to the US National Center for Women &
Retirement Research. Consequently, women spend
40% more time than men researching their ideas
and are also less likely to trade on a ‘hot tip’. Maybe
this is because women have been shown in many
studies to be less confident, so they lack the
aggression of the trigger happy male trader. Men
often dive in based on scant evidence, presumably
being more assured of their views, but without
having the proof to back them up.
Finally, men need to reign in their over-confidence.
52% of men express confidence in their ability to
invest wisely, compared to just 38% of women,
according to the American Savings Economic
Council. In particular, men are over-confident in
their abilities to pick market beating stocks. This
leads them to enter the market quickly, but to stay
well past the point where evidence points to
justified exit.
120 | www.spreadbetmagazine.com | July 2014
“a study from the
National Association of
Investors Corporation,
completed over
ten-years, found that
all-female investment
clubs outpaced
all-male clubs by
producing 23.8%
average compounded
annual returns,
compared to 19.2% for
the male clubs.”
There is a fine balance between getting out too
soon, and being over-confident and staying in too
long. The lack of over-confidence, and thus
being willing to admit mistakes, often makes
women better traders.
So is there anything that women can learn from
the men? I would argue that they could learn how
to have a little more confidence in their investing,
but not so much as to make them bad investors.
Sign up to our broker partnership and I’ll invite you
to free webinars on how to improve your trading
whatever your gender:
http://inter.tradermind.com
July 2014
| www.spreadbetmagazine.com | 121
Technology Corner
Technology Corner
TECHNOLOGY CORNER
THE ESSENTIAL
HOLIDAY
SURVIVAL KIT
The Bag
OK, so for the unimportant things like clothes,
toiletries, passports, tickets etc. you should
probably look at getting yourself an actual suitcase,
but for your essential items, you need to grab hold of
the Proporta Gadget Bag (£24.95). Padded
lining and durable casing mean that your gadgets
will be protected no matter what those baggage
handlers do to it, and clever little apertures mean
that you can run headphone and charging cables
through it as required.
By Simon Carter
With summer upon us and the Great British weather just waiting to let
us down, many of us will be turning our thoughts to packing our bags,
jumping on a plane and heading to sunnier climes. You’ve done your
research, you’ve found the perfect spot and you’re ready to go. But,
wait, what should you pack? Don’t worry, SBM has you covered!
“Though the
price may be a
little rich for
some, the five
times optical
zoom lens with
full manual
control, RAW
output for
serious
photographers,
Background
Defocus and a
host of other
clever little
features make
this snapper a
gem.”
The Camera
You’re not going to want to take your top-of-the-range DSLR and all its attachments out on every trip, so you
should invest in a solid point-and-shoot too. While many are deriding this area of the market, with claims that
smartphones can more than serve the ‘snap shot’ function, you’d be hard pressed to find a phone that comes
anywhere near matching the picture quality of the Canon PowerShot S120 (£330). Though the price may be a
little rich for some, the five times optical zoom lens with full manual control, RAW output for serious
photographers, Background Defocus and a host of other clever little features make this snapper a gem.
122 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 123
Technology Corner
Technology Corner
The Apps
Downtime
If you’re going abroad, there are two ‘must have’ apps that
you need to download before you travel. The first is
Google Translate (Free) which ‘breaks language
barriers’ across an incredible 80 languages. Converse
normally (well, as normally as you can while speaking into
a phone) and Translate will do what it says on the tin and
translate into a language of your choice. You can also type
in those confusing road signs, or take a picture of that
bewildering menu and let Translate do its thing. No more
shouting in English for you! Best of all is that the
languages can be downloaded for offline use meaning
that you needn’t rack up a huge data roaming bill while on
your travels.
You’re on your holiday to relax, and what better way to do so than to fill your case with Lee Childs novels, or
the latest from Zak Mir or Robbie Burns? OK, so it won’t be news that you no longer need an armful of
paperbacks. But with eReaders now ranging from the sublime to the ridiculous, you need to get the right one.
And, in this case, you should probably stick with the most famous name of all, the Kindle Paperwhite (£109).
Although the functions of an eReader may seem somewhat unimpressive (it displays books, right?), the way
that the Kindle handles that task is astonishing and will leave you wondering why we ever bothered with
something as primitive as paper! The good news is that the Paperwhite also handles PDFs so you can take Mir,
Burns and SBM with you around the world!
And that is a major plus point of Navfree (Free), a satnav
app with downloadable maps for over 30 countries. While
Apple and Google provide their own ‘Maps’ apps, both
require constant data connection to download your
location, meaning that hefty charges await when you get
your phone bill. Navfree doesn’t look as slick as either of
those, but all it needs is your GPS connection (which costs
nothing) and it will guide you to wherever you choose.
“Best of all is that the languages can be downloaded for
offline use meaning that you needn’t rack up a huge data
roaming bill while on your travels.”
The Absolute
Essential
You can have all the gadgets in the world,
but if you’re getting bitten by bugs like a
six-foot corn on the cob, your holiday is
going to be ruined. So invest a little in the
catchily titled Electronic Pest Repeller
Unique Pest Control (£26.99) which uses
electromagnetic and ultrasonic waves to
deter those winged nasties. According to the
blurb, it also works against mice, rats,
cockroaches, ants and fleas, but if your hotel
has a problem with those, you’re probably
better off sleeping elsewhere.
When not reading you may be tempted to play the odd game on your smartphone. Those pesky screens
though. They seem so big, but as soon as you start prodding onscreen ‘buttons’, suddenly the screen doesn’t
seem so spacious. Fortunately the guys down at Gametel (£12.95) feel your pain and have produced a
Bluetooth powered controller which clips onto your phone and allows you to play with actual buttons. The
range of games is slightly limited, but it’ll add a new dimension to your smartphone.
124 | www.spreadbetmagazine.com | July 2014
Happy Holidays!
July 2014
| www.spreadbetmagazine.com | 125
Markets In Focus
Markets In Focus
MARKETS IN
FOCUS june 2014
126 | www.spreadbetmagazine.com | July 2014
July 2014
| www.spreadbetmagazine.com | 127
Thank you for reading.
We wish you a profitable July!
128 | www.spreadbetmagazine.com | July 2014