The Secret Broker: Be greedy when others are fearful, be fearful when others are woke
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Now this is going to sound strange but one of my heroes is a chap called David Ogilvy, and he – to me – is up there with Robert Holmes à Court.
Whilst Robert Holmes à Court to me was one of the great stock market players, David Ogilvy was undoubtedly one of the greatest advertising gurus of all time.
David went from being a door to door salesman in Scotland to owning an advertising agency based in New York. His secret was being able to read human emotions.
That’s why I studied him so much, as trading/investing in any stock market can come down to the battles of the wills.
As Mrs Broker knows, one of my most used sayings is ‘well that’s why we have buyers and sellers’ and it normally gets rolled out after I’ve observed someone at the beach with a stupid tattoo.
The person who ordered the tattoo is the buyer. The tattoo artist is the seller, as they don’t care. They just want the money and now some poor lady has a tattoo of angel wings on her back for the rest of her life.
She bought and he sold. She is now long of a terrible tattoo, which she can’t even see (but we all can). He has the cash and is now onto the next victim.
So, human nature is what I like to study and understand.
As Warren Buffett says: ‘Be greedy when others are fearful and fearful when others are greedy’.
In other words, you become the buyer when others are panic selling and you become the seller when others are panic buying because of their fear of missing out.
Strangely enough (and this is why I studied human emotions so hard) most people don’t like buying falling shares, only shares going up.
If you step back and look at a falling share price, the company’s getting cheaper but logically the brain says avoid. It’s going down so that is not good.
One of my first observations of how buyers and sellers react to situations was when we used to catch the school bus home.
In those days, we would travel to school and back in a big red double decker bus and at 4.20pm, about 80 school kids would all rush and try to get on first, so they could get a seat.
The prize seat was the back seat on the upper deck. From there you could command a strategic position for throwing things at the back of all the kids’ heads sitting in front of you.
Having observed all of this madness of the crowd, my solution was to just walk to the previous stop.
That way, I could just step on the bus, head upstairs and sit in the most coveted position and I’m the only one on the bus as it pulls up to the next stop with 80 waiting schoolkids.
After five minutes, the leader of the scrum would make it upstairs and there I was just sitting in his seat laughing.
This went on for weeks and weeks and eventually more and more kids would join me at my one-stop-earlier bus shelter.
In the end, what had become just me became about 12 of us and I would continue on this routine until the scrum became too big.
I became the seller and left them to it and moved onto other tactics.
To me it was logical to go to the earlier bus stop and get a seat but the 80 others couldn’t work it out until someone showed them (that’s the role of a broker. Well an honest one anyway.)
Later in life, when I was working different hours to everyone else, as I was trading in different time zones, I would be walking over London Bridge to catch a train home, just as everyone else was arriving to go to work.
I would be literally pushing past thousands of people going one way whilst I would be the only person going in the opposite direction.
Who’s right and who’s wrong?
In my mind I’m right but in the thousand of others minds I’m the idiot for going against the crowd.
Now that’s what makes markets.
I had one client who panicked and sold all of their shares right at the bottom of a market slump. When I phoned him to give him his last reporting he said that he will never invest in shares ever again.
I thanked him, as he had now confirmed to me that we were at the bottom… so I just loaded up.
Thank you Terry, you will be forever in my wallet!
One of our best tricks was to have everyone with margin loan accounts. They would sit there dormant for a year, or sometimes two.
At the time they weren’t something that you could do in a few days. In fact, they could take a few months to set up.
We would sit and wait for the days where the market would get thumped (short and sharp, over three days) and we would go long. Boy would we go long.
Mainly the banks.
“Back up the truck” we would say to the floor runners.
Our biggest trigger point was seeing the news readers read out ‘the stock market today lost $70bn dollars in value’.
Bingo! In we would go.
Other brokers would be scrambling with their clients to cover off on margin calls, which if not settled by 11.00am the next day, the margin lender would liquidate their holdings.
Guess who the buyers were?
When hedge funds came on the scene, this would be one of the pitches we would make to them, with some nice charts on our overhead projectors and later, PowerPoints, as we moderned up.
Another good one was in the dotcom days, where genuine gold producers were sold down while heavily promoted dodgy wanna-be miners transformed themselves into dotcom companies.
At this time we would be playing on both sides of the fence. Going long dodgy miners as they transformed, taking our profits and moving them into small and medium Australian (unhedged) gold producers.
Thanks Norm and Stavros, you will forever be in our wallets!
If you do what I do and study how the advertising gurus work and why some individuals stand head and shoulders above others, then you will truly understand how to play on human nature.
As for boardrooms, they will never learn until you force them to.
A classic this week was Victoria’s Secret coming out and admitting that using larger models and transgenders to sell their undergarments was sending them broke.
Their original schtick worked around using a prim and proper name like Victoria and how she liked to wear sexy underwear underneath her ankle-length dresses.
Ordinary people could be naughty and sexy, was the image being sold. It certainly wasn’t Victor’s Secret, as they found out.
Sex sells. It’s 101 in the marketing department.
In a celebration of going woke, they even had Naomi Campbell reading poetry on the catwalk, instead of modelling her secrets.
Sales of Bud Lite beer in America fell 26% in a single week after the beer brand decided to partner with transgender activist and influencer Dylan Mulvaney.
Just like Victoria’s Secret, they went woke but the market (and their end user) called them out as just using it as a marketing ploy.
A non-genuine attempt was their mistake, instead of setting up separate brands and being genuine with their audience and their different wants and needs.
Don’t listen to the young ones just out of university in your marketing department. Listen to the 60-year-old, washed-up, cigarette-smoking drunk before he heads off to the pub to calm down his shakes.
He will tell you. Sex sells.
The best example ever of a marketing department managing to sink its company’s share price came from Coca Cola, after they decided to change the taste of it.
As their sales collapsed, Warren Buffett noticed that cases of original recipe Coke were fetching a premium on eBay.
He backed up the truck, loaded it up with their shares as the crowd were selling them down. The when he was set he approached Coke’s board and thumped the table, till they agreed to go back to the old recipe and roll a few marketing heads.
And up went their shares.
So, ironically, TV’s advertising guru Todd Sampson’s career has hit a bit of turbulence after eight years of being on the board of Qantas. (Who knew? Eight years on over $200,000 a year? Not me.)
You would have thought that he would be a genius to have on your board, but after Qantas’s PR disasters, you have to wonder.
Will be interesting to see how he spins this one. He may need a tattoo of some angel wings on his back to survive. If he does, I’ll be sure to point him out to Mrs Broker at the beach.
Only then will we know if Qantas is a buy!
Feel free to contact him with your best stock tips and ideas.