" It is naturally the semi-sucker who is always quoting the famous trading aphorisms and the various rules of the game. He knows all the don'ts that ever fell from the oracular lips of the old stagers, excepting the principal one which is Don't be a Sucker! "
This quote is taken from the finest book ever written on the financial markets, Reminiscneces of a Stock Operator. First published in 1923 it remains the favourite of traders and hedge fund managers all over the world. I myself have learnt many lessons from it and when I was running market-making desks, at a number of investment banks, I used to insist that the traders read it; or atleast the literate ones! The primary lesson and my first cardinal rule of trading/ investing is Don't be a Sucker.
We have been having a great deal of fun with Darren Winters over the last few weeks and indeed he has been receiving a great deal of attention in the Guardian over some of his past dealings. I don't wish to go into his past dealings but for those who are interested the links are provided below:
http://www.money.guardian.co.uk/investments/alternativeinvesting/story/0,1456,791711,00.html
http://www.guardian.co.uk/guardian_jobs_and_money/story/0,3605,1055201,00.html
http://money.guardian.co.uk/scamsandfraud/story/0,13802,1070405,00.html
We sent Potter to a free Winters Seminar last week and DW dismissed the Guardian's articles as being initiated solely due to jealousy of his success. I am all for people being successful, however, I believe Mr Winters, and other evangelical financial speakers of his ilk,are dangerous. Mr Winters offers to teach people how to become very rich. Here is what he says he will teach people in his own words:
1. How, by spending just 1 hour a year you can use a method of investing that has averaged over 20% annual return for the last 27 years!
2. How your investment money can generate you a regular monthly income.
3. No prior investment knowledge needed.
4. How to maximize your profits in up, down and sideways markets.
5. How to minimize your risk and safe guard your investments.
6. The 4 golden rules that every successful investor should know.
7. How to evaluate which companies have the highest growth potential.
8. 3 Essential skills to knowing what to buy, when to buy, and when to sell.
9. Exact steps of how to trade one of the most profitable power strategies known.
10. Proven stock market strategy that wins 86% of the time
During the Seminar Potter tried to play dumb and asked Mr Winters "innocent" questions. However my colleague is not a very good actor and as well as being a bond and derivatives trader for 10 years at the likes of Lehman Brothers, HSBC and RBS he has a BSC in Economics and Finance and the Investment Management Certificate. Mr Winters weasled out of answering his questions and has declined to answer questions we have sent to his,and his personal assistant's, email addresses. Here are the questions that we would like answered:
1. The method of investing you mention that has averaged over 20% a year for 27 years bears a striking resemblance to the figures of Warren Buffett's Berkshire Hathaway fund. Buffetts whole investment approach is based on studying and thoroughly understanding his purchase candidates. How can you possibly suggest that this method takes only one hour a year?
2. This brings me nicely to my second question. One of your "Power Strategies" is selling covered calls, a process where one writes an option against an equity holding. This "yield enhancement" strategy involves using options something that Warren Buffett implicitly steers clear of. Does this not contradict your using his investment methodology?
3. You, and others, advertise this covered call strategy as a way of making guaranteed monthly income. May I bring your attention to a report from UBS who are the biggest players in the derivatives markets and who spend tens of millions of pounds a year on options reasearch; I know as I used to work there. In their report on "Yield Enhancement" strategies, or Covered Calls, a report that I might add involved detailed testing they conclude: " Systematic option writing on equity holding does not work. We recommend investors match observations in the option market with their active view on the underlying security. Our tests show that negative excess returns of systematic yield-enhancement strategies when compared with holding equity are much larger than positive excess returns. In addtition, there are many outliers which are all negative. This is because negative gamma works against the investor in erratic markets." Ok Darren, as I doubt you understand that I will precis it for you. The biggest players in the derivatives market say that writing covered calls does not work over the long term and rather than making a guaranteed return actually loses money, especially in volatile markets. Your comments please?
4. In your seminar you mention training people from the London Stock Exchange, Hargreaves Landesdowne and Halewood International. I am not aware that any of these firms actually trade or invest but rather act as intermediaries or brokers. Have you ever trained anyone who actually trades professionally?
5. I am very interested in you relationship with Hargreaves Landesdowne. Do you receive any commissions from any trades that your customers execute with them? And when I say commissions I also mean "soft" commissions where the firm might agree to pay for marketing and other administrative costs. Why do you take a broker from HD with you to your monthly follow up meetings for members, well?
6. In your seminar you brought up a slide with a number of risk reversal patterns. You said that this information alone was woth £1000. Cannot ALL of those patterns plus many more be found in John Murphy's book "Technical Analysis of the Financial Markets" for the somewhat more reasonable price of £35?
7. You claim to be a full time tarder and to make 100's of percent a year. With whom do you trade? And though I am sure you would not want to show details of the account, using the excuse that your positions are confidential, how about you ask the company to release a statement from their Chief Financial Officer, confirming your percentage gains?
8. I really am interested in the hedge fund you propose to set up. As I am setting one up at the moment I would love to know the following: You are not regulated and you need to take the Investment Management Certificate before you can. When do you propose to take this? You say that a company is going to put £30 million into it and that rather then mess about making 25% a year you will make hundreds of percent a year. What instruments do you propose to trade to make these returns and I'm sure the leverage needed to make such returns is not only unrealistic but quite frankly unattainable. Please which bank is going to act as your Prime Broker and will allow you such gearing?
9. This is my final question and probably the one which should be most relevant to the Financial Services Authority. Are you not making unrealistic claims? And in so doing and letting a bunch of amateurs loose on the options market, are you not leaving your members open to massive losses?
Should Darren Winters wish to reply, as he has so far failed to do so, we would of course be willing to publish his response. We are not jealous of his success but merely think he is talking a load of b*******s, and a load of dangerous b******s at that!
Harry
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