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Alessio Rastani: Three crucial investment tips for 2013

by LLB Editor
3rd Jan 13 5:08 pm

Controversial trader who told the BBC “Goldman Sachs rules the world” gives his predictions for the year

Our columnist Alessio Rastani is the self-proclaimed trader who shocked the world by declaring live on BBC News that he goes to bed “every night dreaming of the next recession” and that “Goldman Sachs, not the governments, rule the world”. He’s a controversial figure, not least because he’s a self-taught non-institutional trader with no FSA license. But he certainly isn’t shy about sharing his views. Do you agree with his words? (His words are his own, and in no way endorsed by LondonlovesBusiness.com.)

A financial column would not be a financial column without a recap of the year.

So without further ado, here are the 3 valuable investing lessons learned in 2012 that will come in handy this year:

Lesson 1: The financial “news” will not tell you anything useful…

Switch on the financial news and listen to it for a few months. You’ll  recognise a familiar pattern.  

When things are going well in the economy and markets are going up the news is “all is great, markets are rising”. When things are rough and markets are going down, the news is”disaster disaster, the sky is about to fall on our heads!”.  

Well, that’s really useful – right?  

I am joking. It is not. In fact, it is my belief that as a professional investor you have an obligation to turn off the news and listen to what is really going on. Or – better still – do the opposite of what the “news” is encouraging you to do.

Here’s a good example. Cast your mind back to May-June 2012. What was the the biggest “disaster” news story at the time?  

Back then we had the prospect of Greece “leaving” the European Union, Spain asking for more bailout money and the bankruptcy of Europe as a whole. And the cherry on top? The LIBOR Scandal and JP Morgan having lost billions.

In the midst of such fear and uncertainty, you would be branded “insane” for doing the opposite of the masses i.e. buying when everyone is selling.

Well, that is exactly what we did. In June 2012 I pounded the table on buying stocks. I’ll never forget the voice of one shocked journalist to whom I said on the phone “now is the time to get greedy.”  

What happened next?  Take a look at this chart of the S&P 500 – the index of the 500 largest companies in the World:


Chart to demonstrate investment lessons

As you’ll see, the stock markets formed a bottom on the 200 Day Moving Average shown in red on the chart (a key support area watched by many mutual funds and hedge funds) in June and then rallied into September – a gain of just over 15%.

We start 2013 with a similar situation when all we hear now is the “fiscal cliff” babble from Washington. The time will come (and I am counting the days) when in January/February 2013 the stock markets shall form a bottom and then it will be time to buy again.

And here is something important you’ll need to remember: 

By the time the financial news media stops talking about all the “bad news” and the fiscal cliff – the market will have moved too far away from the bottom. The great buying opportunity will have been lost.

Lesson 2: Be prepared to think alone…

Successful investing and trading is a lonely business. You have to make decisions that will be unpopular and downright difficult.

It is NOT like other businesses where you may turn to other people like a friend or a colleague to see if he agrees with you (unless that friend or colleague is as clued up on investing as you are). In fact, more often you’ll want the majority of people (“the herd”) to disagree with you.

I remember back in December 2006 I warned my own relatives that a major market crash was coming. The reaction I got was one of utter disbelief.  

“The Dow will go to 15,000 by end of the new year!” was one response I got.

I have to be honest. Even though my own research showed that we were nearing a market crash, it was really hard to convince myself, let alone others, that it was true.  

To admit to such a thing would have to mean that everyone was wrong.  That the crowd who were out there buying houses at the peak of the housing market were wrong.  

This brings me to one of my favourite quotes from legendary gold investor, Jim Rogers, who once said: 

“When everyone starts thinking the same way, you have GOT to start thinking ‘hang on a minute, it CANNOT be right if everyone is thinking the same way!  Somebody is NOT thinking!’”.

Lesson 3: Is it “buy and hold” – or more like “buy and hope”?

Many of my fellow traders and colleagues believe that “buy and hold” – the concept of buying stocks or commodities and holding on to them for long term growth – is dead.

I disagree.

However, those who say “buy and hold is dead” do make an important point.  A lot of folks, with very little knowledge about investing, are told by their banks, brokers or financial advisors that as long as they hold on to their stock for the long term, they will make money.

Well, that is utter garbage!  And here is why…

Take a look at this chart of the stock market between 1998 and the end of 2012:

Chart to demonstrate investment lessons

If you had bought stocks in the late 1990s, you’d have given all your profits back in the “tech” crash that followed in 2000 – not to mention major losses. Then stocks rallied from 2003 to 2007. Again, anyone following just a straight “buy and hold” strategy would have lost their gains in the 2008 financial crash.

If the 2008 crash has not taught anyone the lessons that “hope” is not a strategy for financial or investing success, then I have nothing further to say.

Clearly, to be successful investors, we need to know when to buy and when to sell (the blue and red circles in the chart show potential buy and sell points respectively).

For most people, the strategy is not so much “buy and hold”, but “buy and hope”!

As many of LondonlovesBusiness.com will know, my investing motto is “buy, hold and homework!”  Successful investors are not afraid of spending an hour a day doing a bit of homework – even if it is just looking at the chart of the stock – to see if it is still worth holding on to a stock.  

That may mean either selling it for a small loss, a small gain or a major gain. What you want to avoid is a major loss.

For 2013, I wish you all investing success and I hope the above will be of help to you.

Alessio Rastani is a stock and forex trader at www.leadingtrader.com

For further information about trading the markets visit my website www.LeadingTrader.com.

Alessio Rastani gained fame and caused controversy last year by stating live on BBC news that he “dreams of another recession” and that “Goldman Sachs, not governments, rule the world”. The YouTube clip has since been watched over two million times, and Alessio has subsequently been interviewed by figures such as Sir David Frost. His website is LeadingTrader.com.

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