Soggy Bottom – The Great British Trade Off Final Wrap

I’m hugely competitive and hate losing so today is a sad day in my house. After two and a half years of The Great British Trade Off, I concede defeat; I’ve thrown in the towel and retired hurt.

GBTO started in April 2017 as a real money competition between Fagin (because he likes to pick the market’s pocket) and me, Humbug (possibly because I own a famous sweetshop and possibly because I’m a miserable bastard). Fagin was the trader, I was the investor.

‘virtual money scenarios do not carry the fear and greed that actually stalks the market’

We thought it best to use real money, our own real money; virtual money scenarios do not carry the fear and greed that actually stalks the market and we wanted this to be 100% real – which was the better way to make money in the markets – trading or investing?

We each allocated £100k to the competition, Fagin used part of his SIPP; I used part of my ISA. We ignored platform charges but included all the other costs of trading and investing, brokers’ fees, stamp duty and buying and selling spreads.

I won’t bore you with a blow by blow account – if I do, we’ll all lose the will to live; especially me.

In summary, I had an appalling first year despite the FTSE All Share Index rising 250 points; I was in two minds whether to invest all my money on day one, or whether to buy in as and when I saw value.

I did the later, but got spooked by Fagin who was banging in great trades right from the outset; as a result I did something stupid and tried to play catch-up. It doesn’t work.

‘But it wasn’t pretend money, it was my own real money I was chucking away’

It’s quite possible to both trade and invest at the same time if the activity is kept separate; what doesn’t work is a hybrid of the two.

That was my mistake; in a pretend money competition I think I’d have taken bigger and bigger risks and might have pulled it back, but more likely would have blown the account up.

But it wasn’t pretend money, it was my own real money I was chucking away, although despite almost everything I did being wrong, ruthless money management meant at no time did I put myself in danger of a catastrophic loss – the largest drawdown I suffered was around 8%.

So, I went sailing and in the peace and solitude had a long think; with a revised plan, by mid-2018, although Fagin was over 30% ahead of me, I matched him month on month – his lead didn’t increase and for a short time I began to claw it back.

That changed in the savage market decline from late last summer to the start of this year when the FTSE All Share Index fell from 4300 to 3600. My system got me out of the market without too much damage but I then had to sit on the sideline as Fagin continued to trade, making money as he went.

This year in general has been good for both of us, although the sharp decline in July was more of a problem for me than for him.

So, what were the results of the competition and what have I learnt from the exercise?

FTSE All Share Index is up 2.25% (excluding dividends) over the competition timeframe; as the investor I achieved a gain of just under 10% and Fagin as the trader ran away with it, generating almost 50% profit.  I lost by a margin of five to one.

It took me a while to settle down and stop losing money in the summer of 2017, and had I got away to a better start I might have had a result in the high teens, but I’d still have lost by a huge margin.

A good trader is nimble because they trade a relatively small amount of capital – that is very hard to beat as an investor.

My conclusions are that until the sums of money involved become far larger than any ‘normal’ private investor would have at their disposal, the odds favour the trader.

‘A good trader is nimble because they trade a relatively small amount of capital – that is very hard to beat as an investor’

Although the investor can produce market beating returns, they are tied to the performance of the underlying market because they need to be prudent and hold a diversified portfolio; the larger and more diversified a portfolio is, the closer it tracks the market.

An exception I guess, is an investor with a really deep understanding of a very few companies who has the balls to run a tightly focussed portfolio; provided, that is, the portfolio is invested in brilliantly performing shares.

With hindsight, if I’d put all my money into AstraZenica (AZN) on day one and simply left it there, I’d have finished level pegging with Fagin without even having to check the market; but on day one would that have been prudent use of my funds? I think not.

Being a trader however isn’t simply a licence to print money, particularly if running a very large sum of money. Trying to trade, say a twenty million pound portfolio, would not be easy because it would be almost impossible to quickly enter or exit a trade large enough to be worthwhile without moving the market; nice to have the problem though.

Also, when invested, a trader carries not only market risk but sector, and most dangerously of all, stock specific risk; market risk should not be underrated as with one tweet The Trumpster can drop the market anytime he likes, but stock specific risk can be something else – some really bad news and the price is off a cliff.

So, Fagin made some mistakes and on occasions stupidly broke his own rules, but on balance he traded brilliantly and is a worthy winner. WELL DONE HIM.

I commissioned a hand painted model of Fagin for him to put by his trading screen to remind himself that the best way for him to continue to make money is to act like the real Fagin and to pick the market’s pocket.

Finally, if you’d like to see how we trade and invest in great detail please go to https://www.thenimbletrader.co.uk or maybe follow us on Twitter @nimbletraders

Regards,

Humbug