Robbie Burns is the epitome of a successful trader. For over 15 years now he has been successfully playing the markets and, as a pastime, has written a number of books about his experiences. He is very well off, being part of the UK's 250-strong list of ISA millionaires. He owns two properties outright in London worth a seven figure sum each. He has a large following of private punters who read his blogs and diaries and attend his training seminars. And, if you're into that kind of thing, he trades from home in his pants while watching Deal or No Deal and eating Twix bars.
His latest book, Trade Like a Shark, is all about trading psychology. Although Robbie has no formal qualifications in this complicated discipline he has something a lot more valuable – experience. Because of that, his advice is well worth listening to, much more so than that given out by spurious "Chief Market Strategists" of spreadbetting firms you've never heard of.
The premise of the book is that investors should exhibit "shark" like behaviour while trading the markets. Sharks are ruthless and focused, so they win pretty much most of the time. Fishes, on the other hand (a metaphor for bad traders), quickly get gobbled up as they have no focus or direction. In the ensuing chapters Burns teaches investors exactly how to get their teeth out and be nasty.
What's the secret to being a shark?
After examining the trading records of hundreds of his seminar attendees Robbie concluded that the best traders aren't mathematical geniuses. Neither are they fully trained research analysts or accountants. Instead the secret lies in the brain. It's all about psychology. The best traders treat their investments just like a business, making rational, efficient and logical decisions totally unaffected by emotion – a bit like Mr Spock. In other words, to make money in the markets you have to take the feelings out of it and be as boring as watching John Major watching paint dry.
Part One of the book covers The Way of the Shark, or in other words the characteristics and behaviours that successful traders exhibit. An important point here is that trading should be treated not as a hobby but as a business. In business those that survive and prosper are ones that are ruthless. Robbie thinks that Alan Sugar would make a good trader because of his cold-blooded and shark like attitude to firing people on his show The Apprentice. He argues that the same should be done with underperforming investments. Some other people he thinks would be good traders are Tony Blair (slimy and scheming but ruthless) and James Bond (cool and calm under pressure). But you don't want to be like Gordon Brown, selling gold at the bottom of the market, prone to temper tantrums and having a new calamity occur every other week.
The eight deadly emotions
After giving some useful advice on the basics of trading and how the professionals do it, the next section, and my favourite part of the book, covers Robbie's own version of the seven deadly sins.
The Eight Deadly Emotions are particular feelings and sensations which generally cause investors to make bad trading decisions. By interspersing the text with examples of real people who have exhibited these emotions in their trading the book highlights the dangers of fear, greed, desperation, egotism, anger, excitement, stubbornness and regret.
Take Barry for example. He had a pot of £200,000 to trade the markets with, not a small amount by most measures. Driven by greed and lured by the excitement of a long-shot stock he put the whole lot into Coms, the AIM listed telecoms business, at a price of 12p per share. The shares quickly dived, however, and Barry refused to sell. It's not known whether he ever exited his position but with the remnants of the company currently trading at sub 2p it is highly likely huge losses were made here.
More usefully, Robbie explains how to eliminate the impact of emotions on your trading and describes in detail what the traders in the case studies should have done in their own unique situation.
Of course it is difficult, if not impossible, to completely remove emotions from trading. We are human after all and not from the planet Vulcan. Robbie recognises this and comes up with a solution for traders who want to get their fix of excitement. He suggests taking 5% of your trading pot and putting it into a separate account. From this you can invest in anything you want: oil stocks with dodgy CEOs, Illiquid penny shares pumped up by bulletin board posters, My Aunt Sally in the 2:15 at Doncaster... anything. After all even Mr Spock let his emotions run wild on occasion – or was it only that one time when he breathed in some strange pollen on an alien planet and fell in love with a blonde girl?
The third and final part of the book discusses a number of dangers and traps which can often have a sneaky habit of exploiting the brain. These classic dangers include misconceptions such as "this stock can't go any lower/ higher", "it's bound to come back" and "blue-chip stocks don't fluctuate much". Burns cautions against paying too much attention to other people's advice and warns against the dangers of following so called financial "experts" such as tipsters, brokers, bulletin board gurus, even the bloke down the pub with a "hot tip". He is also very wary of the role which technology currently plays in the financial markets, with instant access to the markets tempting people to over-trade, a gluttony of financial information creating too much noise and addictive social media sites conjuring up questionable trading ideas from anonymous and egotistical alpha males.
Just to make sure you have been paying attention, the last few pages of the book contain a quick quiz on the ways of the shark, as well as a brief list of 13 rules which shark like investors should always apply to their trading. Number 13 is definitely the most important – never smear jam on your keyboard!
A book to get your teeth into
Robbie Burns has done it again with Trade Like a Shark. Like all his other books it is written in the same unmistakable humorous and entertaining style. Experienced and amateur investors/traders alike will learn a lot from it and should always have it on standby in case they are tempted to make an emotion driven trading decision. Over- all, a fin-tastic and jaw-some read!