Confessions of a share trader The Intrepid Investor Series (Part 1) Matt Brennan My name is Matt Brennan, and it has

s been longer than 18 months since I could be officially classed as a highly active share trader. The practise of frequent share trading has acquired Omert status, which is the code of silence Mafioso used to protect their interests. In the same class as an expert magician, a high volume share trader would exercise maximum caution when divulging secrets as more profits can be earned from successful trades than publicising their secrets in even the most lucrative of book deals. Viewing the worlds of share trading from both sides, the intellectual property that share traders have been so adamant in protecting is merely the illusion that there is in fact one guaranteed secret of success. During the period from the 15/03/2010 to the 24/06/2010, I reinvested my opening capital of $3550 until it turned into $5820.78, or a profit of 63.97%. This figure factors in brokerage as well as the vast quantity of sms price alerts I used to monitor the entry and exit points for my selected stocks. Becoming an active trader was a product of circumstance and personality. Working at an accounting firm where share market banter was a lunch time staple, in conjunction with my enthusiasm for economics and the share market, it was largely inevitable that I would dabble in the share market. It was the meager return offered by my savings account which hastened my entry into the share market. My stock selection early on was not exactly based on fundamental analysis. Mount Burgess Mining, my first trade as a high volume trader (I previously bought BHP and CSL as longer term holds) was chosen merely because the ASX code was the same as my initials (MTB). Nonetheless 18% was made in a little over a month. Audax, or ADX Energy Ltd (ADX) as they are now known, was located through scrolling through the list of ASX codes starting with AAA. This trade turned out to be incredibly profitable, and was a good choice based on strong liquidity (based on a combination of trading volumes and market capitalisation) as well as having the necessary volatility to be successfully traded. But I was not thinking about these aspects at the time, and it was scary to consider that I could easily have invested in the later bankrupted ABC Learning Centres (ABC) or an array of other dud stocks at the time. Scattered throughout history are tales of people placing merit in hunches. Car dealership guru and Perthonality John Hughes told of one story at a recent high school reunion (we attended the same school, just a few decades apart) how he elected not to proceed with a business decision based on an upset stomach. Amazingly, after he confided within himself not to make the decision the ailment was gone and indeed he did make the right decision. Acclaimed author Steven Johnson in 2010 wrote the book Where good ideas come from, which demonstrates the notion that chance and serendipity play a big part in the innovation process. For a more concise read on the topic, refer to Hunches in bunches by Dr. Seuss. One of the few trading rules I had then that has survived to the present day is to have a minimum investment of $1000 per trade to ensure profits are not eaten alive by brokerage. Brokerage used to be $29.95 per buy and $29.95 per sell which only exacerbates what is displayed in the table below. Brokerage is currently $19.95 per buy/sell, for simplicity sake I have rounded this up to $20. The lowest possible trading order is $500 net brokerage (which means $520 must be initially invested)

and it is at the $1000 mark in which the law of diminishing returns becomes most noticeable (regardless of the gain %).

Share Trading Profit Spectrum

Amount Invested Buy Brokerage 10% Gain Sale Brokerage Gain Net Brokerage Realised Gain

$ $520 $1,020 $2,020 $5,020 $10,020 $20 $20 $20 $20 $20 $550 $1,100 $2,200 $5,500 $11,000 $20 $20 $20 $20 $20 $530 $1,080 $2,180 $5,480 $10,980 $10 $60 $160 $460 $960

% 1.92 5.88 7.92 9.16 9.58

It was Gordan Gekko in the blockbuster movie Wall Street who proclaimed greed is good. This is not always the case. If I were to do a where are they now analysis of the two companies that I frequently traded, Mount Burgess Mining is now trading at 0.002, (down 86.67% from when I sold) and ADX Energy Ltd is currently perched at 0.025, (down 86.84% from when I sold). Just as the investor should have a stop loss, they should also have in mind a profit taking threshold. I am still a trader, but only to the extent of 5-15 trades per year depending on market volatility and performance. This approach places higher levels of capital into more reputable stocks based on actual fundamental and chart analysis* as opposed to solely using a hunch. I would now rather chase a 6% return off $5,000 which yields approximately the same gain as a 30% return off $1,000 (there are slight differences in brokerage), as the more conservative companies offer the protection of a fully franked dividend, which from an income and tax perspective, is the gift that keeps on giving. *To get started on learning about fundamental analysis, I recommend downloading the free Stock Doctor software 14 day trial from the link below. http://www.lincolnindicators.com.au/stockmarketsoftware

Share Trading Profit Spectrum

Realised Gain %
10.00 8.00 6.00 4.00 2.00 $520 $1,020 $2,020 $5,020 $10,020