Opto learns five key strategies from Adam Robinson, a chess master and advisor to large hedge funds, to get ahead of the market.
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“War is a game played with a smile,” Robinson quotes former UK Prime Minister Winston Churchill. Only Robinson isn’t talking of political conflict, but of investing in the stock market. That is his first advice to potential investors. “If you’re nervous about the trade, you’ve put too much money at risk. You should be able to be playful about trade.”
Investing in stocks should feel like “fun”, and a buyer in the stock market should do it out of love for the fine art of picking stocks rather than doing it as a necessity, the advisor added.
It seems logical then that Robinson’s second piece of advice is that every investor must have a personalised strategy to outperform the market. “If you want an edge in the market, you have to choose a system built around your own idiosyncrasies and talents.”
That may sound simpler than it actually is. To be able to create such a system, the investor must first learn their talents. Robinson points out that some are better at investing in consumer sectors because they are naturally able to identify the big movers, while others may be better at investing in the banking system because of their understanding of interest rates and their impact.
The one universal aspect in all strategies is to be patient. “You learn what your talents are, and then you wait for those moments, you wait for those situations” to catch the right company.
“You learn what your talents are, and then you wait for those moments, you wait for those situations (to catch the right company).” – Adam Robinson
Each system must have a process by which an investor can anticipate what will affect markets before others, because events are often factored into share prices before they have transpired, said Robinson. For instance, equity markets already factor in potential interest rate increases by the US Federal Reserve, even before they have occurred.
Robinson’s system, for instance, is to track bond traders. He said that the bond market forecasts economic events ahead of a reaction from equity markets. “I know, for example, that at major tops and inequities that bond traders have usually detected the problems weeks to months earlier, and are already positioning for a protracted downturn,” he said.
Steer away from traditional research
Robinson’s next advice is that fundamental and technical research is misleading, and he therefore never uses it. Fundamental research can give results that may exist in a vacuum. The value in a stock exists only if all investors agree, he said. So, if an investor’s fundamental research shows a much higher value for the stock than the current market price, it is not a given that the price will rise to the level indicated by research, Robinson explains.
The outcomes of technical analysis can swing either way. “My problem with [technical analysis] is that there are so many indicators that form dozens of trend lines that you could draw …and so there’s an indicator that will justify buying a stock and also selling it at the same time.”
“My problem with [technical analysis] is that there are so many indicators that form dozens of trend lines that you could draw …and so there’s an indicator that will justify buying a stock and also selling it at the same time” – Adam Robinson
Lastly, Robinson said that once an investor has formed a system, adhering to it should be “ruthless”. He cites the example of the movie Top Gun, in which the lead character learns that he should never leave the side of his wing man, even if that means getting shot at. In the investing world, that would translate to cutting losses even if there is hope of recovery.
To hear more insights from Adam Robinson, listen to the full episode on Opto Sessions.
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