This month Zak interviews spread betting guru Vince Stanzione.
ZM: There are cynics out there (including our beloved editor!) who suggest that those who can trade do, and those who can’t “advise”. Do you agree with this and are there any financial markets gurus you follow or respect?
VS: I agree 90% of those who offer seminars, tip services, advising etc cannot trade or invest themselves and are getting rich off the “how to” bandwagon. It can be argued that I fall into that camp as I wrote my first course on spread betting in 1997. I was however already wealthy at that point, both from other businesses and investing. Most of the people I respect are dead, but Ralph Acampora and David Tepper I follow today.
ZM: Much is said about trading for a living, but is it really worth it given the anecdotal evidence of a failure rate for most people of over 90% and so the risk reward ratio doesn’t stack up? What can those who do, in the face of seemingly insurmountable odds, decide to embark on this pursuit realistically expect to make?
VS: I would never just be a full time trader; my experience is that the more time you spend trading the more you lose. My style is trend trading and so I can be in a trade for weeks, months and even years. It means that I don’t have to watch a screen all day. I trialled a Bloomberg terminal a few years ago and gave it back as it was simply too much information! My experience is those desperate to make money never do, that is why having a second income helps. The majority of my students are over 50 years of age and are already fairly wealthy – I don’t deal with the unemployed or last chance hopers!
ZM: So you are effectively vetting your students before they start. Does this mean that the demographic they represent have the best chance of winning in the markets? It clearly helps if they have been successful in their life to date, is that what you are saying?
“Trading in an incorrect way is very similar to smoking. You get the buzz from the occasional rewards, which keeps you hooked on a path which otherwise is doing you little or no favours.”
VS: Yes you are so right, success breeds success, not necessarily that they have trading experience. I will give you an example: I had a lady I taught to trade that ran a successful florist shop. She knew nothing about shares or markets, but she did know about profit margins, buying from the flower market, having too much stock and so on. So really her life experience was helpful when trading stocks.
ZM: What would you say that the minimum requirements are for successful trading – financial, knowledge, mindset, account size?
VS: I think the minimum to open an account these days is £5,000; it can and has been done on less, but really that is what you should be starting with. Knowledge wise, really sometimes less is better than more, my workbook takes the assumption that you have never traded before. Mindset? Really someone that does not get upset when trades don’t work out, losing is part of the business and people that are not in a hurry to see instant results generally are more profitable.
Returns are also not evenly distributed, trading is not a job or pay packet where you earn X a month, some months you will make nothing or lose money, other months you will do very well. Anyone that is self-employed will know it’s not a smooth curve. I think trading is like dating, if you are desperate for a date it shows and women don’t want to date a desperate man! If you are desperate to make money, you overtrade making trades when you should do nothing and normally it ends badly.
ZM: Can you describe to us your trading style/system and why you think it gives you an “edge” over the markets?
VS: I do not use one system, I would describe myself as the “Bruce Lee” of trading – I change and adapt, but at heart am a trend trader, although sometimes can be contrarian, and I also pay heed of seasonality and sentiment.
ZM: You may not have just one system for taking positions, but of course what kills many a trading account is not the winners but the losers that outpace them. What are your key signs that you were wrong and it is time to get out? Is it just a matter of a certain amount of money, or are there other cues that tell you that the factors that brought you into a trade are no longer valid? Do you find it easy to take a loss – something which ‘bad traders’ have great difficulty doing.
VS: Starting out, I hated taking losses, I would hold on and “hope” that those bad short term trades would reverse, of course they largely became bad long term ones! I would cut the winners far too quickly as we all like instant gratification. As I matured, I learned to do the opposite. I do have a fairly mechanical exit, so if a trade is not making money and falls below a certain point it is cut and in many cases I reverse a trade from long to short and then back again. I have done that a few times with Netflix (NFLX) the last 3 years.
ZM: I have over the months interviewed several leading figures in the markets, whether trading for themselves or managing funds, and one thing has stood out which I did not expect. In general, it would appear they are successful at trading (a losing game for most retail traders) because they are exceptional – either in discipline, IQ, knowledge or in most cases all of the above. In other words: just as they are winners in trading, they would be in business, the academic world or probably in anything they put their minds to. Is there any point getting involved in the market if you know you are not highly gifted?
VS: I am very interested in people and psychology. I made my first million from car phones by watching trends and what the yuppies wanted. I have no real formal qualifications. Yes, exceptional people, be it in sports, business, TV or trading are wired differently and in many cases have a different emotional make up. We don’t really care about rejection or being wrong.
ZM: You have been quoted as saying that your main successes in the markets have not come from day trading, but more from what would be called position trading / trend following. Are such trades based on technical or fundamental triggers? Is there a typical set up?
VS: Both, it is funny. The so called technicians often quote fundamental issues and I think they should be used together. My typical set up is a stock that is either hated or loved and then I start seeing a trend change – Apple both up and now down is a good example.
ZM: The impression given in the media is that you are something of a millionaire recluse who was successful in the business world and then came to trade the markets. Why do you want to actually help others make money – shouldn’t people find out for themselves as you did?
VS: My first business was set up at the age of 12 – selling computer games on tape. My dad was a hairdresser and wanted me to take over the business (looking at my own hair — no way!), and so I got a job in FX as a junior in 1985 after I watched a program on BBC2, I then got wiped out in the 1987 crash and started the car phone businesses.
Then I decided to have another go at investing in 1990/1991 (when I had money) and bought penny shares such as Next at 11p via an entity then known as Sharelink. I opened my first IG Index account in 1990 and I still have the account today (it’s a very short account number!). But I learnt from others such as Jesse Livermore, Jim Rogers and Nick Darvas, so why not pass my skills on? But you’re right, traders must make their own mistakes, it’s part of growing up in the markets.
ZM: So you think issues such as the banking sector, the Eurozone and a possible bubble in China will be resolved successfully?
VS: Well if you read certain media, the world is always ending, so far the world has not (in fact wasn’t it supposed to on Dec 12th last year?!) and if it does then you have nothing to worry about! But seriously, humans are very resourceful and adaptive, that is why we don’t use a typewriter or travel by horse and cart anymore. The times I have read that oil is going to run out, yet truth is we have plenty and cars are far more economical.
