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Not Just An 'Ideas Man' When It Comes To Stocks
BY MATT HIBBARD - 17/02/2017 | VIEW MORE ARTICLES BY THE DAILY RECKONING

Steve Kerrigan: ‘It’s a motorbike helmet with a built in brake light.

Darryl Kerrigan (gushing): ‘You are an ideas man, Steve.

It’s hard to believe, but 2017 marks the 20th anniversary of the making of the iconic Australian film The Castle.

Even harder to believe is that the whole thing only took 11 days to shoot, with the film reputedly taking just five weeks to go from inception to final production.

The Working Dog Productions crew adopted the Kerrigan name from a real towing business — Kerrigan’s Towing Service — a business that’s been operating in Box Hill since 1979. By using the Kerrigan name, they could borrow the tow trucks without having to change the signage.

It was just one of the things they did to keep within their miniscule $750,000 budget. That kind of money wouldn’t have been enough to pay the deposit on a Hollywood star.

We don’t know how much Working Dog made out of the film. But it’s fair to say that if all films generated the kind of return The Castle did on that tiny budget, we’d all be in the movie business. And not having to worry about where to invest our money in the stock market!

20 years on, I still haven’t seen a motorbike rider with a brake light built into the back of their helmet. Perhaps someone tried to commercialise it, but got lost in the process.

But that’s the thing about ideas. As good as they might be — I personally believe Steve Kerrigan was on to something — they don’t have any value unless we can implement them.

The need to specialise

If you get into investing in the markets, there are two broad ways you can go about it. Firstly, you can do the old ‘buy and hold’ approach. The primary idea is that, over time, your shares will escalate in value, and you receive a whole swag of dividends along the way.

Of course, that’s the theory — there are going to be a whole lot of bumps along the way. But if you go into the market with the second approach — that is, to actively trade it — you need to have a firm idea of what you’re trying to do. You need to formulate a plan that you can put directly into action.

There are over 2,000 stocks listed on the ASX. I haven’t yet met anyone who has a handle on all of them, let alone half of them. Most full-time traders choose to specialise in just one or two areas of the market. It might be industrial small-caps, or mining stocks.

It’s normally a sector they’re familiar with, or have information about. Like the ASX 50, for example. Trading the 50 biggest stocks on the ASX also allows you to do something else: trade both directions of the market. That is, both long and short.

And, if you don’t want to be a stock picker, you can trade the index itself, or a sector, using CFDs (Contracts for Difference) or the futures market.

Whichever sector(s) you choose to specialise in, the first step is to narrow down that investment ‘universe’. The next step — the hardest part — is nailing down your plan.

Putting your idea into action

Trading is a short-term game. Because of that, it usually involves some kind of technically-driven strategy. That is, looking at price charts and trading off indicators.

A common one is to enter a trade when a shorter-term moving average crosses above a longer-term moving average. You can exit when it crosses back down again, or use that as a potential trigger for a ‘short’ trade.

Another popular method is to draw a trend channel. Here, the trader looks for a stock that is trending upwards, within a band. Once the price closes below the lower line — the support line — they’ll look to exit the trade.

As you can imagine, there are countless numbers of indicators you can use…and only a finite amount of time to see which ones work, and when they work. Despite all their fancy names, these various indicators relate to just two basic pieces of data: price and time.

The greatest trap in devising a trading strategy is trying to use too many of these indicators. And no indicator always works. Moving averages work better in a trending market, but burn up capital when the market is choppy and trading sideways.

And that’s where we have a massive advantage over Steve Kerrigan and his motorbike helmet. I can’t imagine how much that would have cost to get to market. All the safety tests, trademark, legal and insurance issues, not to mention the capital required to get it to production.

With trading, we can start as small as we like, and refine our strategy as often as we like. But the most important thing is to put the idea into practice. Without implementing that strategy, it will be no more than just another idea.



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