Trevor Neil, a former floor trader and hedge fund manager, is the co-founder of RRG Research, a company that uses proprietary charting technology, relative rotation graphs (RRGs), to provide insights for investors.
RRGs enable investors to distil the relative strength of hundreds or even thousands of securities into a single chart, allowing for a comparative analysis that would otherwise take weeks to reproduce and be impossible to visualise.
In this episode of Opto Sessions, Neil considers how easy it is to get wrapped up in market madness, and why investors should beware of making moves in the heat of the moment.
Listen to the interview:
What’s the top mistake investors make?
Retail investors, specifically, focus on the reward and don’t consider the risk. That’s why so often it goes awry.
Where do you go for investment insights?
I'm a technical analyst and everything I need to know is in the price. Fundamentals are a distraction. I find it very easy to think that my opinions are my own, but it’s really something that I read … However, I don’t live in a bubble, and I only read the Financial Times on a Saturday to basically find out what happened and why. What, for example, was the fundamental reason?
I know what happened because it was in the price and if the price went up, there was something bullish that happened. It’s not really important to know what it was … I don’t read publications to get any inspiration or insight about the markets. I think everything I need is in the price.
“I'm a technical analyst and everything I need to know is in the price. Fundamentals are a distraction"
What is the most memorable moment from your career?
When I was trading for the hedge fund in South Africa, we traded very intensely. We were big traders in the market. We did about 3% of the turnover of the Johannesburg Stock Exchange, which is a quite big stock exchange with big stocks, Richemont, Anglo American, Anglo American Platinum and BHP had primary listings there. We were big into that and we day traded those stocks, we borrowed and sold short.
I was working really hard. We were doing well and making a lot of money — the best performing active hedge fund in the country and all that sort of thing. I’d not worked so hard since I was in my twenties. It was exhausting — I was dizzy at the end of the session. But on the 7 July 2005, there was the terrorist attack [in London], and a bus was blown up in Russell Square. My son lived in Russell Square, and I couldn’t get hold of him — he wasn't answering the phone. My partner said to me: “Get off the phone. If your son is dead, you’ll know at the close … This should be the one of the biggest days of the year financially for us.” That’s when I realised I had to get out of the hedge fund and return to the UK and operate on my own.
What’s your top tip for your younger self?
What one would like to say is I should have bought Apple and held on to it, but that would have never happened. There’s no point in saying that … But I would say that the tip for my younger self is to properly understand the awesome power of compound interest, which through my life, I’ve continuously failed to appreciate. If you have a long career and a long time participating in the markets. Don’t underestimate — and people really do, even the experts — the awesome power of compound interest.
“If you have a long career and a long time participating in the markets. Don’t underestimate — and people really do, even the experts — the awesome power of compound interest"
What is an investor’s best source of alpha?
Firstly, investors should take trading seriously. Most of the retail participants are in it for entertainment, and that’s not a bad reason, but they don’t think it’s serious as a business itself. But trading and investing is a serious business, and it should be treated like a business.
You should think about the risk and use the advantages you have as a smaller investor, which is your smaller size. You aren’t having to cope with the problem of executing orders. Trade in a timeframe where you have you have no disadvantage by end of day. End of day data is the same for an institution as it is for private investor. You can probably do the analysis better. I work with institutional traders, and they’re not as clever as sometimes you might think.
You’ve got the advantage. You can diversify when a lot of them can’t because, for example, they could be a copper trader and all they’re allowed to do is copper. It’s a lot easier if you traded Vodafone, for example. Please respect how much capital you need in order to survive. You’ve got to realise that you’re not going to win every time and losses are normal. If you can’t take those losses and it’s game over, then you’re definitely going to be out of the game. I suggest to also be systematic and rule-based. Develop a computer program to help you do the things which makes sense in a rigorous, disciplined way.
Finally, do all the thinking about a trade in advance of the trade itself. Leave nothing that you’re going to do to be done during the trade. Only before the trade can you think clearly because you haven’t got a P&L, you haven't got your heart racing, you haven't put any money into the market … Therefore, everything during the trade is just a process. All the thinking was done when you could think clearly, and you can't think clearly when you've got a position. Why do footballers ever miss penalties? It’s because of the pressure of the moment. Something may be easy and have been done 1000 times, but they can mess it up. Why? It’s the pressure of the occasion. So, do everything you have to do before the pressure of the occasion.
“Finally, do all the thinking about a trade in advance of the trade itself. Leave nothing that you’re going to do to be done during the trade"
To hear more from Neil, including what he made of the recent GameStop saga and the social factors that drive trades, listen to the full Opto Sessions episode, here.
Or for more ways to listen: