(Don't) make me a trader

Did anyone watch ‘Million Dollar Traders’ on BBC2 last night? If not, and you want a laugh, and you’re in the UK, it’s worth catching up with on the BBC iPlayer. Eight beginner traders with no previous experience were put in charge of $1m of someone else’s money, and left to get on with it after a two week induction programme.

I sat through it with bemusement and horror. Anyone who traded through the scary markets of summer 2008 will recognise some of the mistakes. One character bought British Gas – at 1204p – remember those prices? He did it just as the gas price peaked and then watched it lose 5% in about 5 minutes. Another decided to have a flutter on HBOS around the rights issue (a tactic I was guilty of) and then watched it collapse. Another bought Bradford and Bingley, about a month before they went to virtually zero. One had the (good) idea of shorting BA as the oil price spiked but only risked £2/ a point (or 200 shares) when her maximum trade size was up to £50/pt. It’s always good to start small and see what happens, but no-one seemed to suggest that if the trade was working she might want to add to her position.

On another morning everyone simultaneously went short and within 5 minutes they’d blown up 2 grand – not one person thought that having the odd long position to hedge their shorts might be a good idea.

And presiding over this fiasco was invisible, almost always absent hedge fund manager Lex Van Dam. There’s a name to conjure with. I think I should change my name to Lex Rabbit. He’d left a 29-year old sidekick in a glass office, who occasionally emerged to shout at the traders, particularly after Lex had got cross on the phone about how much of his money they were blowing up. There didn’t seem to be much ongoing coaching or support, nor did any of the traders seem to be discussing their ideas with the rest of the team. The guy who was in charge didn’t come round and chat to people about how they were getting on very much. And the traders mainly they sat around reading the FT, taking long lunches and staring at the screen in horror – now that’s something I can identify with. But it was a pretty scary idea to put 8 complete beginners in charge of $1m and let them loose in the worst bear market in 60 years.

They only seemed to be trading equities; no currencies, no indices, no commodities. It might have seemed to be a sensible strategy to limit the asset classes these novices were working with, and certainly made the world of trading more accessible to the viewer. But to be trying to run an equity-only fund, even if you could go short, in the summer of 2008 wouldn’t be a picnic for anyone. I’m amazed that Lex risked $1m of ‘his own money’ on this . It was less like Curtis Faith’s ‘Way of the Turtle’ and more like ‘Way of the Fool’ (I was going to say ‘idiot’ but I thought that would be a bit unfair and rude – it wasn’t those guys’ fault).

I don’t know really if the foolishness was more to do with Lex’s appetite for serious risk, or the lack of preparation the traders had. I’m sure some of them will come out in better shape than others. And it’s not a scenario I’d wish on anyone, although I’d had loved to have got my hands on some of Lex’s cash to trade with last year!

Everyone, except for Lex and his sidekick, seemed remarkably relaxed as the markets collapsed around their ears. Anyway it’s worth a look and most of you will recognise some of the scenarios all too well. A good lesson in ‘spot the mistakes’.

Trading Update

Talking of mistakes, I should probably have left those housebuilders and banks alone – Taylor Wimpey are sitting back roughly where I started, having had a round trip yesterday afternoon into more than £100 of profit and back again. I closed out most of the position and have left a small long in Barratt and Taylor Wimpey running. Apart from what I wrote earlier, the other reason for sticking with Taylor Wimpey (that is, if they survive) is that they have a US operation and may be one of the beneficiaries of an Obama housing stimulus package. But I won’t risk holding them below 18p a share. I’ve set wide stops on the banks (they’re just in at £2 a point) and I’m seeing them as a foolish hedge for the size of my short index position.

Game’s results were good but not good enough for the market, so that long has gone now too, and I closed out Activision yesterday for a £50 profit. I’ve kept my long DSG going for now, and I’m still short of Tesco.

The key thing I’ll be watching, when I get a chance, over the next few days, is the dollaryen and euroyen cross. If they spike up that may be a signal to close out my index and gold shorts and consider going long again. But for now, I’m happiest being mainly short, in small amounts. And my long dollar currency trades are galloping on, for now.