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My top tip: buy a time machine

31 May 2006

12:18 PM

31 May 2006

12:18 PM

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About this time last month I was at a party at The Spectator, drunkenly urging anyone who’d listen to buy into this amazing share I’d discovered called Tullow Oil. I’d done exceptionally well by this little gem over the last 12 months and I wanted as many people as possible to share in my joy so that when — as was inevitable — it reached ten quid a share we would all have doubled or trebled or even quadrupled our money.

‘But what does it actually do?’asked Martin Vander Weyer. ‘Well, it’s in oil,’ I said. ‘Yes, but is it an exploration company or what?’ ‘Oh, I dunno. Drilling, exploring, that sort of caper. Based in Ireland, I think, but it doesn’t really matter. The point is it’s doing really, really well.’

The very next day Tullow Oil announced that it had capped two of its exploration sites, one in Pakistan, the other in Gabon, having realised that there was no oil there. Almost instantly, its share price tumbled by 10 per cent. The next day, it fell by another 10 per cent, dragged down by the markets’ sudden terror of any sector that had anything to do with oils, metals or emerging economies. Which was a bit of a bummer, because these were exactly the areas I’d been investing in for the previous two years.

God, it had seemed easy when things were going well. I’d invested in funds with a high exposure to Eastern Europe, Japan, India and basic minerals, and not one of them had risen by less than 50 per cent. I looked down at all those cautious panty-waists who’d bought into property funds yielding no more than 9.5 per cent per annum, and the even more stupid idiots who’d left their money in high interest-rate bank accounts at 5 per cent. ‘Ha ha, you fools!’ I cackled dementedly. ‘I’ve made more in one year than you will in ten.’

What I should have realised, of course, is that until you’ve actually taken your profits, these supposedly massive returns exist only in the realm of fantasy. In fact, part of me did realise this. Even as my shares were climbing and climbing, a clever-clogs little voice in my head kept whispering, ‘Yes, but where’s your exit strategy?’

‘Exit strategy? But what would I want one of those for?’ the greedier and more dominant part of my brain replied. When your shares are going inexorably up, a terrible form of wishful thinking takes hold. You suddenly become convinced that Newton’s laws don’t apply; you start inventing arbitrary targets as to how high you think your shares ought to rise before you sell, convincing yourself you can drive them up by pure will.

So what lessons have I learnt from all this? First, never trust anything you read on internet discussion sites. This is where I got almost all my share tips and advice — mostly at — and it has invariably proved disastrous. What’s true of Hollywood is even truer of the stock market: no one knows anything about anything. It’s all guesswork.

Secondly, trust your instinct. This may seem blindingly obvious, but it’s amazing how easy it is to let your amateur’s sixth sense be obliterated by the supposed expert knowledge of others. Just a few days before Tullow’s shares plunged I had an idea that I should be selling rather than buying more, because the price seemed to be getting overheated. Then I saw in the discussion room another Tullow shareholder saying something like, ‘Yippee! Did you notice how some of the Tullow management dumped a quantity of their shares today, and still the market price rose? This baby’s going to fly.’ And I thought, ‘Oh. Nothing to worry about, then.’

Third, when the time comes, get out quickly. If I’d sold on the first day of the fall, instead of going ‘Ohmygod. This isn’t happening’ and selling on the third, I would have lost only 10 per cent of my shares’ value rather than 25 per cent.

Fourth, freelance journalism is not compatible with amateur trading. You’d think it ought to be — all that spare time to kill. But you end up basing your decisions on things like, ‘I’ve just finished a long piece and want to buy something to amuse myself’ rather than on careful research. Fifth, don’t be greedy. My Tullow shares were up 127 per cent at one stage. This wasn’t enough for me. I wanted 400 per cent. My hubris resulted inevitably in catharsis. And lastly, get a time machine. Nip into the future, see what your shares are going to do, then pop back to the present and act accordingly. It’s the only way you’re ever going to make this trading lark work. Seriously, it’s a mug’s game.

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