My best trade ever (so far)
Preamble
Here is a story that you should gain something from.
I spent last week in Florida at Disney world. This is linked to some meetings I did before I headed there. I was running around London with a hedge fund manager.
The reason we know each other and that so much has happened between us; is all down to few moments in a bookstore in Texas. In fact I wouldn’t have joined Betfair if I had gone through this meandering journey through gambling, then financial and back to gambling markets which has helped fund my exploits in a variety of things.
Some decisions that are made in ‘an instant’, can actually take years to plan or maybe you are just sat patiently waiting for the opportunity. This was the case with one of the biggest trades I’ve ever made (to date). But most of it, like a lot of decisions in life, was pure timing.
The holiday that created the trade
Take your mind back to 2008, the economy was collapsing and the world was about to end. Seemed like a good time for a holiday! I have traditionally taken a holiday in the winter, so travel afar in search of sun. You often leave the UK half covered in snow and arrive somewhere warm and comforting
That year, I thought I would take the kids to Florida over half term.
The idea that seeded the trade
Here we break away from the main story for another trip to the US, this time Houston. In a former life, I worked for Compaq and they sent me to Houston. This was a big experience for me at that stage of my life. All my previous jobs were very limited in scope but I thank my boss for throwing me in a deep end on this occasion and sparking new experiences. I owe him a debt of gratitude that I repay at every opportunity where I can.
I remember when he asked me if I would like to go and my mouth blurted out yes, before I even had the chance to digest what he had said. I didn’t even have a passport! I pondered over the next days how I was going to cope with working in a foreign country without experience. It turns out I didn’t need to worry. Life lesson in there for everybody.
I really enjoyed the experience and that set me off on a life of travelling at every opportunity.
The book
While waiting in the airport for the return trip home I picked up book.
I didn’t realise at the time just how pivotal that book would be in my life. It would lead me on many surprising paths, but I’ve learnt that that’s often how it works. You do something and if you are looking for an opportunity, you often find it. If you are looking for problems, you often find them too! So I’d suggest you keep a positive outlook and look for opportunities. Casually brush over the cock ups, don’t dwell on them, life can be 50% chance so treat it as such.
I didn’t actually sleep on the plane home because I was so enthralled by the book. But by the time I had landed, I realised this was something I wanted to do. It just sat so well with me. So the first thing I did when I landed in the UK was find out how to invest in Berkshire Hathaway. The book I was reading was ‘The making of an american capitalist” by Roger Lowenstein.
I’d spent a lot of time since the mid 80’s getting interested in investing in financial markets. But a lot of my effort to that point in 1995 was producing mixed results. But the book shone like a beacon for me. My first purchase of BRK.a was that year, that purchase has risen ten fold since then. But this wasn’t the million dollar trade. For that we go back to the future and my visit to Florida.
Some of the best ideas happen by accident
One thing that struck me as the kids dragged me around the various theme parks, was just how busy there were. But it was an unequal distribution. Universal studios was quiet, Busch Gardens was dead. That was great however, as we made ourself dizzy visit an excessive number of various coasters; but Disney was always packed. Here we are in the worse economic crisis since the 1930’s and everybody seems to be at Disney!
Since picking up that book at Houston in the early 90’s I’d spent the intervening years working hard at investing and indeed, that’s what I thought I was going to do when I decided to leave a normal job in the early 00’s. However Betfair intervened and it was sports markets that I did now, but the useful thing was that this was booming. In fact, any excess cash sports trading threw off I would invest or hold in cash waiting for an investment. It was a virtuous cycle.
As I lapped on my overpriced Ice Cream watching the crowds, it was reminiscent of stories told in that book I had read over a decade early. American express had fallen on hard times after a scandal and they stock price had plummeted. So Buffett went out into the field to see what impact that was having on people using it’s core service, very little was the answer. So when he got back he invested heavily.
My concern about doing this sort of thing was the economic outlook and that had worried me. How can you plough into a position with so much uncertainty? I learnt overtime that this was actually the key to making good investments. Uncertainty creates opportunity and that is true in EVERY market. However, I needed to seek counsel on how to do this.
To understand how I sought counsel, we need another back story.
The normal career
I left school with little in the way of decent qualifications. I didn’t come from an academic family and, let us say, expectations were not high. I had a passion for computing having owned a ZX81 and Spectrum but when I tried to pursue career down this path I kept getting kicked back. ‘Your maths isn’t good enough’ was the phrase I heard often.
Pissed off, for want of a better word, with the number of roadblocks in my way. I gave up trying to do things then normal way and tried to get a job with a company I felt I could have some passion for. Eventually I found a, rather low paid, job with a software distributor. Once I had my feet under the table I started to work hard and soon established mail order division for them. From there I followed a meandering path up the career ladder.
The jump
Eventually I found myself working for a variety of companies in increasingly more senior positions ending with a German consumer electronics group. But my passion was fading. So I realised that the only thing that would reignite it was to do something that was entirely in my control and where I made my own decisions, took my own risk and made my own reward. Nobody to blame, no politics, no bowing to somebody else’s career pressure. So I took the jump. With three young kids everybody thought I was mad, but it was easily the best decision of my life.
A first I didn’t exactly know what I was going to do, all I knew was that I wanted to do something on my own. Betfair was around but the volumes were low and there was nobody, not a single person, that I could see that was trying to do what I was.
The meeting
So, the first thing I did was hop on a plane and head to the US, to seek counsel with friends and ask their advice. I had also been given the opportunity to meet Warren Buffet, so I ran around London trying to see if I could sell the story. It would be useful to get the trip paid! Curiously, on arrival in the US, there was more media interest than in the UK! This seems to be a repeating pattern I’ve seen over the years. I don’t know why this is but it seems to be a cultural thing. Getting an interview in the US seemed easy compared to the UK.
On arrival in Omaha, the HQ for Buffett, there was major shortage of taxis. So on trying to grab one a ‘debate’ broke out on who actually had acquired the cab first. Three of us looked at each other and that few seconds changed the path of life for all of us. We decided to share the cab and since then we have all become the best of friends, especially after a night out on the town later that day!
They were amazed that I was going to get to meet Buffet and asked what conversation I would choose to have with him. I already knew. I need to understand how to make decisions. I knew Buffet had been through the catastrophe of the 1970’s crisis and wanted to quiz him of how to act and what to do at these moments. So that’s what I did.
All the reading I had done and the comments he made, reassured me that being bold was the key to making good decisions. It set me off down the path of understanding how people actually make decisions. The answer is often, very badly indeed.
Buffet told me that even in the depth of the crisis there were problems for sure, but opportunities were everywhere as well and to really focus on the opportunity and ignore the macro economic issues. You can’t predict them, so only focus on the opportunities and the quality of them.
Making the plunge
Back at Disney as I ‘relaxed’ in the thronging crowds, I began to realise that this could be an opportunity. So I fired up my US broking account and had a nose at Disney stock. Back at the Villa later that night I poured a lot of effort into a lot of reading and trying to understand the risks and prospects involved in the investment. I eventually reached the conclusion that I should purchase, so I used up all the spare funds in my US account to buy. Disney stock was trading around the $15 mark when I was buying in earnest and recently touched highs of $120 before falling back a little.
It was sitting with the Ice Cream that gave me the idea. But when you reflect on it, it was a decision that came about for many reasons and over many years. All the clues were there, but the only clever thing I did was be bold enough to make the decision to purchase. The reason it worked is because everybody else was in a panic and prepared to sell at daft prices. People are also generally unable to think long term.
The rest as they say is history.
Returning to Disney this year was a sweet experience because, while a blow out trip like this is expensive, it was entirely funded by the previous trip. While the words to any song from Frozen may annoy you, it’s music to my ears!
Category: General, Trading strategies
