Harry Hindsight

The Glow of Schadenfreude

"All true investing must be based on an assessment of the relationship between price and value. Strategies that do not employ this comparison of price and value do not amount to investing but to speculation." Warren Buffett

I was reminded of this quote after today receiving the usual ADVFN partner offer which urges readers to take advantage of an investment strategy which last year allegedly turned £2000 into £31,000. So what sort of leveraged strategy must this firm be offering? Long Short equity? Risk Arbitrage? Or perhaps a highly geared China fund? No according to ADVFN and the advertiser the somewhat inappropriately named Assett Investments, gambling on the horses is not betting but investing. I have a feeling that the Sage of Omaha would join me in the view that a fool and his money were damned lucky to come together in the first place.

Should anyone wish to learn more about the Investing methodology of Warren Buffett you could do alot worse than buying the "Essays of Warren Buffett." In a world infected with toxic get rich quick schemes, it is a pleasure to hear how the best investor ever has made his money. Full of common sense ideals with not a "power strategy" or Winteresque "cycle of abundance" in sight it serves as a timely reminder how the best plans are often the most simple.

Expect fun and games today in the market. We have important economic data out of the US between 13.30 GMT and 15.00 GMT. Gold is hovering around the psychological $400 level and there are some big stop loss orders accumulating in the Euro/$ market. (Members can see the levels on HarryBuzz). We might well have to wait though until 4.00 pm and the end of day fixing for these stop losses to get triggered but I have a feeling that they will be.

In equities, holding above yesterdays S&P low of 1122 in the S&P will be important. Also of interest will be the behaviour of the Semi-Conductor Index. yesterday it held above $500 but it has fallen 10% in the last two weeks and a further move lower could well start to spook the Bulls.

Thankyou to MoneyAM, and those who managed to brave the weather, for what proved to be an enjoyable seminar. I had been hoping that "Doji" Darren would send an acolyte to heckle me but alas did not happen. I hear that not all is well in Winters World and that some of his colleagues are abandoning ship. It seems that some people have found out that the Winters Investment is as much of an oxymoron as US intelligence!

Herr. Schadenfreude Harry

Year of the Sheep Part 2

Weakness in the semi-conductor index has many traders nervous of holding shares as this is a potential sign that January Effect buying is tailing off. $11 billion dollars went into equity funds in the US in the first 11 days of January and now it remains to be seen whether this trend continues. One trader who certainly isn't nervous is the one at JP Morgan who having received a nice bonus and promotion on Wednesday got laid off yesterday and now has a whopping redundancy check to add to the other.

We had a great many emails yesterday, regarding our Muppet of the Year Award, from "industry professionals" but none from Mr Winters himself. "Doji Daz" makes a great play on his supposed relationships with a number of firms as this gives him credibility. When my colleague Potter attended Mr Winters seminar he made a point of the "fact" that he had trained a number of brokers from Hargreaves Lansdown. We have asked "Doji Daz" to explain this relationship a number of times but as usual he doesn't seem to wish to talk to us. Fortunately Hargreaves Lansdowne are not so shy and their Head of Commercial Development, Savid Rawlings, has today made the following statement:

" Darren Winters has never trained any Hargreaves Lansdown staff and our only involvement was exhibiting alongside a number of other brokers and organisations at a couple of his seminars. We have never and will never have any commission sharing arrangement in place with Mr Winters or his company. Hargreaves Lansdown took a decision after attending a couple of events that the quality of the event was such that we did not wish to be associated with the event, the Winters Investment Network or indeed Mr Winters himself. We still hold this view. We have asked Mr Winters formally and informally on several occasions to stop making the false claim that he has trained Hargreaves Lansdown staff."

It looks to us like "Doji" has been telling porkies and that if anyone who purchased a course, after attending a free seminar in which they were misled, can quite reasonably ask for their money back. My colleague Potter is devastated at this news. Ever since attending the course he has been part of the "cult" that is Winters. He has been treading the path, that will lead to the keys, which will open the doors to perpetual wealth and happiness. The poor chap has only just realised that the path led to Darren Winters wealth and happiness rather than his.

Harry

Year of the Sheep Baaaaaaaaa

Happy New Year. Yes today is the start of the year of the Monkey and those born over the next 12 months will be skillful and inventive. As the future is undoubtedly chinese we have been working according to the chinese calendar and will therefore award our Muppet of the Year award for 2003 or as our oriental friends say the Year of the Sheep.

Let's cut straight to the chase.There were really only two candidates. Well to be honest there was only one as due to on going exams and authorisations it really is sensible not to mention the other one and what I think about them. When one considers that last year was the Year of the Sheep then the only winner of our prestigious award can be The customers of Darren Winters. Yes last year if you paid to attend a course by the self proclaimed "leading investment speaker, writer and trader" and general all round renaissance man then you can at least keep comfort in the fact that you have won a prize from us. OK granted this may not make up for the money you have wasted on his course and whatever you lost trying to trade his "power strategies" but hey it's better than nothing. ( And if you have been writing systematic covered calls then nothing, or less than nothing, is quite possibly what you have.)

It's nice to see, or rather hear, Darren back on the airwaves advertising his free seminars that will set you on the path becoming an "investment millionaire" just like him. I know some people have baulked at this phrase as they believe that "Doji Daz" couldn't even get a job at Standard Life. I however can see where he's coming from as he obviously invests alot of time giving investment seminars and one can hardly expect anyone to have the time to trade when they spend the whole time preaching.I am however interested to know who are the people he is referring to when he says he is "praised by industry professionals?" I would love to know which "professionals" he is talking about. I will post our previous newsletter about this at the bottom of this page but I would like to finish this with a few questions. I know that Darren reads this as indeed do industry professionals:

Darren you claim in a number of letters you have sent recently that criticism against you is based on jealousy. You claim that you are an investment millionaire and lauded by your peers. Prove it. How about a debate in front of your peers?

Next weeks Money AM exhibition, would be a good place, and you can present your views and assertions to a knowledgeable audience rather than a bunch of lambs who seem to go willingly to the slaughter. If this is not convenient I am happy to arrange this at a time that is and what is more I will pay for the renting of a venue.

FSA. When are you going to act on the report that you have had since November on this guy? I suppose that considering they are still investigating CSFB from 1995 we will have to wait for the next year of the Monkey!

Harry

*

" 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.htm

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

The Drugs Don't Work

With the G10 ministers meeting in Switzerland this week we can again expect the Forex markets to lead the way in terms of volatility. Traders are looking for the Dollar to be "talked up" though quite whether words are enough to stem the tide of greenback selling remains to be seen. Sterling continues to hold up well against the Euro and on a trade weighted basis and a breakout through the 0.6910/20 level could lead to a further extension. The equity markets will be interesting this week and with many traders having sold shares after the worse than expected US payroll figures of Friday. Should equities continue higher this week this will both squeeze out the shorts as well as re-enforcing the upward trend. Remember that when a market moves against the prevailing economic data, this is a very powerful indicator.

Much of the New Year buying has been led by January effect buying in the semi-conductor stocks. The US fund managers sold these stocks in December and have been picking them up again all year. If this January buying is to falter it will be in the semis first of all so as ever we will be keeping an eye on these via the SOXX. Updates on this are available for members via our Harry Buzz alerts portlet.

Living in London it is very easy to get depressed. What with exponentially increasing bus and tube fares, crippling council tax rises as well as the usual nationwide array of stealth taxes that remain about as subtle as the 3rd US expeditionary force at a meet and greet session in downtown Tikrit. However there is good news.According to the Daily Telegraph the prices of illegal drugs have crashed since Labour came into power in 1997. Cocaine, heroin and cannabis are apparently 29% cheaper so even though many people can no longer afford to live in the capital we can at least go and get stoned so we don't give a damn!

Harry

It's A Mad World

"Sell Dollars wear diamonds" is the rallying call wherever you look. The newspapers and TV stations must be right surely, especially when they have such learned professionals as David Bloom telling you where it's going. A massive stop loss trigger yesterday at 1.2800 has caught the market out, well most of the market because we shorted yesterday at 1.2797. It was a classic running of a stop loss; buy a large amount to trigger the order and then cover the order from your own book, allowing the rest of the market to get long in anticipation of further buying which never materialises. Sweet. With the market still long euros and the EU commission today calling the tinkering with the "suicide pact" illegal, we are looking for a reasonable correction in the dollar, possibly / hopefully to 1.18/1.20.

Considering these Euro tensions one must ask what planet Tony Blair is on by setting 2007 as the entry date for the UK into the single currency? Perhaps he has decided that this particular circus does not have enough clowns already. I do understand where he is going though with taking Red Ken back into the Labour Party though, as they are so well suited. This year my tube fare has gone up by 25% and the corresponding bus journey by 42.85%. This is after the congestion charge which was supposed to raise extra revenues as well as forcing more travellers onto public transport, thereby further increasing revenues in a supposed virtuous "double bubble." What we are left with however is rampant price inflation for a service which remains poor and with a workforce who insist on going on strike unless they are allowed to play squash on sick days.

Perhaps this is all part of a Tony Blair master-plan to take us into Europe. He knows that the public don't want to join the single currency so he wants to make life so expensive and miserable here that we all move to Europe instead. And while I'm having a rant what the hell are the Daily Mirror up to? Let's be honest, as lovely as she was Diana did go through a period when she became a tad "Dagenham" (beyond Barking). To even give credence to the conspiracy theory surrounding her death whilst making Charles out to be Dr. Evil is sad.

And another thing.........No I think I will stop there for the moment.

Harry

We're Back

This time last year I was forced to give up food and alcohol in an attempt to combat the effects of having cornered the markets in mulled wine and mince pies. Fortunately this year I am somewhat healthier and I have returned from Mallorca without having been dragged back into the water by Greenpeace and therefore my fasting will be somewhat limited.

Over the holidays the market trends have continued. the dollar has weakened and equities and gold have continued to surge much to the consternation of those Elliot wavists who are no doubt recounting as we speak.

For the last two years we have put out predictions for the year and spookily been spot on. Last year we called for a move down to 3440 in the FTSE followed by a rally to 4550. I say spookily because I am not a great fan of having set predictions for a whole trading year as it is important to remain flexible. So what about this year then? Our detailed views will be sent to members this week but here are some of my thoughts:

The market consensus is for an equity market rise of roughly 10% but in an industry that relies on a rising stock market for their profits this is hardly surprising. One thing that we can be sure of is that we will not just have an incrementally rising stock market. With a US presidential election, geo political uncertainties and the fuel of a massive derivatives market we will see good volatility.Last year the FTSE traded between 3277 and 4500, the year before between 3609 and 5362 so a trading range of 1300 would be quite possible. The market consensus for the FTSE at the end of the year is 4825 so the question is will we surprise to the upside, possible to 5500, or to the downside. We could quite conceivably see both with the outcome of the presidential election causing a sell-off.

The movement of the dollar will be interesting and I can't help feeling that we will see a good bear market rally, especially if the equity market continues to rise. I know this is against the trend but when taxi drivers start talking to you about the weak dollar a rebound can't be too far away. Also we should not forget the Homeland Investment Act which is currently with the House Ways and Means Committee. If this is passed it will lead to some large dollar buying, possibly as much as $400 billion a year; almost enough to wipe out the trade deficit. Over the coming months we will continue to keep members informed about this crucial piece of legislation which the rest of the market and the financial press continues to ignore at their peril.

With so many people attempting to end bad habits with a stream of new years resolutions it is nice to see that Commerzbank refuse to be a slave to fashion. Yesterday their senior economist came onto the television saying how the strength of the pound against the dollar would have a dampening effect on inflation in the UK, thus helping the Bank of England keep rates low. One might expect a European bank to actually know that the UK conducts three times the amount of trade with the eurozone than it does with the US and that the pound has been weakening against the Euro. I am sure that the BOE know that the pound has actually fallen 4% on a trade weighted basis over the last year and will therefore ignore the ramblings of a financial institution that continues to set low targets and fails to achieve them.

Harry