Investments must past 'back test' stratagem
Published in The Australian September 2006
Anna Fenech
Jonathan Garrett's first investment was speculative shares writes Anna Fenech
What happened?
I was 24 years old and I wanted to experiment a bit. So, I embarked on a short-term trading strategy. I would spend money on trading shares between $2 and $5 and hold on to them for two or three days.
I lost some of my capital, which convinced me that perhaps I needed a longer-term plan. I was pretty inexperienced, so I read some books, attended some seminars and set about learning on the job. Luckily I come across many share market educators on the job.
What are your investment goals?
I want to earn income to supplement my lifestyle. I also have a mortgage, so everything helps.
What's the best investment decision you've made?
I bought a media services stock called AAV in 2003 for 75c because it was rising in value - it was trending up and had reached an all-time high. I am a fan of charting, so this was all good.
I held on to it for two years, then sold it at $2, though it did get as high as $2.50, I think. It has since fallen back to about $1.06, so I did well to exit when I did.
What about the worst?
This would be when I first started trading in the currency markets. It's very volatile and jumps all over the place. To give you an idea, I was in the market for 15 minutes and lost nearly 20 per cent of my capital invested. I was trading the US dollar against the Australian dollar and also the euro against the Australian dollar. Nevertheless, I persevered with it and I now trade mini-contracts.
What's the best piece of investment advice you've received and who was it from?
Seek information from a stock education company and then "back test" your hypothesis. That is, use historical data to engage in simulated trading to see how the stock you want to buy will act under various market scenarios.
That way, you get a feel for the market and you see whether your strategy is going to work or not. Companies like Wealth Within have that sort of information.
What advice would you give to an investor who is just starting out?
Educate yourself as much as possible, read books, go to seminars and start with small amounts to test yourself and get a feel for the market. Then use the back-testing stratagem, where you try out your strategy in a simulated trading scenario.
How do you react when markets get rocky?
I don't worry too much about it. Often it is an opportunity to trade short in the market.
What's the biggest investment risk you've taken and did it pay off?
Moving from just trading shares to trading currencies because the currency market is much more volatile and you can lose money really quickly.
With the currency markets I trade using five-minute bars, or intervals two or three evenings a week for about 15 minutes.
What would you never do with your money?
Leave it in a bank account earning no or low interest.
Where do you source most of your investment information?
I work for Market Analyst, which provides services to people who are advocates of charting (as opposed to fundamental analysis), so I spend my days as a customer relationship manager. I speak to and get information from share market educators as part of my job - which is great because I have learned most of what I know on the job.
What, for you, are the most important attributes of a good financial adviser?
I prefer a focus not just on the assets I have already accumulated but productive ways of investing the income that I generate. That is, how to use investment income to make future profits.
What are your views on socially responsible or ethical investment?
It would be fair to say that all of my investment decisions are made for technical analysis reasons. Often I have no idea what business the company is in at all.
Would you feel comfortable about running a portfolio of individual, direct shares?
Yes and I do. I hold about 10 shares, mostly mid-cap because I think the opportunities for growth at that level are greater. And, if a large blue chip company's share price falls too low, it can take years to recover.
How do you feel about investing overseas?
I think it is a great idea, but I don't do it at the moment. My superannuation fund, managed by MLC, probably has money invested overseas, which is enough for me at the moment.
