I have been trading shares since I was 18 and my last big loss was when the music retail chain Brashes went broke in 1998. I wish I could say I was a great success as a stockpicker, but I can't. I have made money consistently but the only chance I have had to make big money was with Webjet which I bought for 5 cents. Webjet closed on Friday 28 September 2012 at $4.09. I got a bad case of cold feet and pulled out. At the time, the broker was despairing and said I was the only person who'd made money on Webjet. Famous last words.
I bought my first stock with Eyres Reed in Perth from Peter Eyres, nephew of the firm's principal, Gordon Eyres. I bought 2,000 Ferrovanadium Corp at 9 cents. I said they were a long term investment -- 18 months. Peter Eyres expressed some astonishment, as holding anything beyond the close of trade was considered to be a long term investment in those days. This was in 1971, at the tail end of the nickel boom. Ferrovanadium owned a vandadium deposit at Barrambie, north of Meekathara in outback Western Australia. I had an insider tip that the mine would be developed "within 18 months". It's now 2012 and it's still waiting to be developed. All Ferrovanadium's assets were sold in exchange for two stripper wells, in Arkansas, I believe. At the time, I had a good laugh but I could afford to -- by then I had sold out. I was reminded of Mark Twain's definition of a gold mine -- "a hole in the ground surrounded by liars". Vanadium, by the way, is used to make tool steels and there is an eternal shortage, but never severe enough apparently for anyone to bother developing the Barrambie mine.
I did not buy more shares following my less than satisfactory experience with Ferrovadium until I returned from Taiwan in 1982. I spoke to Gordon Eyres and we bought a very good portfolio based on Western Australian regional companies -- Calsil, Peters WA, WA Trustees, Swan Brewery and several others. I made money on all of them. They have all ceased to exist as independent companies. By the time the so called "entrepreneurs" got going, it was like shooting fish in a barrel. I was continually being harrassed by companies soliciting my stocks in takeovers or proxy battles. I well remember jumping up and down for joy when John Elliott announced a bid for Carlton and United Breweries (CUB) , which I held. When the government announced overseas invested companies such as Cadbury Scwheppes and P&O would no longer be required to have a local minority shareholding it was almost like getting free money when they took out the minorities.
Owning stocks used to be fun. The Central Norseman Gold Mines AGM was held about half an hour before the Western Mining AGM. When Central Norseman found some new gold and was actually making money, Hugh Morgan would be harranged by the shareholders, numbering in total about 20, all over 70, who demanded to know when the firm would pay a dividend. "I've held this bloody stock since since the 1950s and want to get a divie out of it before I die" yelled one elderly gentleman at Hugh Morgan. Of course, the Central Norsemen AGM was held in the expectation that they were also WMC holders and wouldn't delay the WMC AGM by asking too many awkward questions. While all shareholders are entitled to attend the AGM, those that do can be broken down into two groups -- the analysts and other serious investors and the retirees, who turn up for the refreshments. BHP Goldmines had a great spread, while one other well-known firm, which invited shareholders to stay for a "cup of tea and a biscuit" provided exactly that.
The best advice I've had on trading shares is "when the ship starts sinking, don't just stand there, jump!" That adage may have cost me some money from time to time, it has also saved me many thousands of dollars. When it comes to "trade or buy and hold", most people don't hold, they just don't do anything. Those who've held the punters' favourites like BHP and the Big Four banks have done well, not because they've had a conscious strategy to hold, but because they've done bugger all. When another one of my mother's shares goes bust, most recently Alseco, which collapsed from $12 to near zero, she will tell me as if imparting some great secret that a capital loss is a tax deduction. As I tell her with great restraint you can only offset a capital loss against a capital gain and she has never -- not once in 20 years -- taken a profit.
While I have made consistent profits, they have not been great profits --- useful, rather than spectacular. I would like to turn my attention two two men who have made real money.
You would never guess John Babb was a wealthy man. He was a taxi driver, known to his fellow cabbies as "night and day" because he wouldn't stop working. He read the Financial Review, often dropped in on the Stock Exchange of Melbourne when all trades were recorded on the chalk board in the exchange in Collins Street. He kept is ear to the ground, and he had the ear of -- and an account with -- just about every major broker in Melbourne. He bought Poseidon twice in its journey to $280 in February 1970. Although I spoke to John many times, usually at least twice a week, I never found out just why he was so much better than me as a stock picker. Towards the end he started losing his touch -- he did $20,000 cold when Budget Rent a Car went bust a few days after it floated. He lost a lot of money but he made a lot more money. He bought News Ltd on the float and made many hundreds of thousands.
"Big Bill Baillieu" is the most influential businessman Australia has ever known. Asked why his floats often did better in London than Australia, he is reputed to have said "the further you get from a mine, the better it looks." His career is recorded in one of the best business biographies of the post-war era "William Lawrence Baillieu: Founder of Australia's Greatest Business Empire" by Peter Yule (Hardie Grant, 2012). His fortune was founded on the the mines of Broken Hill and encompassed just about every sphere of Australian business. He was an entrepreneur in the true sense of the word.
Over the period I have owned stocks, I have dealt with brokers in all mainland States. A very few of them are crooks; most are just following advice produced by the research department or pushing what they are told to sell. Some are very good. They almost always have "skin in the game." The two best brokers I have dealt with are Gordon Eyres of Eyres Reed and Ian Gillion of Gilllon Derham. Ian was the odd lots broker to the Exchange. In the old days, you had to deal in a "marketable parcel" of a certain number of shares. If you had an "odd lot", that is, a small number of shares, Ian Gillon would buy them from you at a deep discount. Ian's daughter, Sally, also worked in the business. I recall one day calling into the Gillion Derham office to deliver a cheque and asked Sally what Santos were doing. She looked at the Reuters screen and
said "you'd better be quick, they've just struck oil." It turned out it was a development well in the Cooper Basin. I had a good laugh with Ian about that later but the stock did well.
A computer screen is a lot more efficient than dealing direct with a broker. It is also a lot less fun and doesn't know what the current gossip is. If you want a price, you are a lot less likely to follow it up with an order, which is probably a good thing. When deregulation came the Australian share market, Ian Gillion said "It's completely stuffed this business. I think he was right.
If you want a tip, I have held Swan Breweries, CUB, Wolf Blass Wines, Mildara, SA Brewing (which became Southcorp), Foster's and made money on all of them. I now hold Treasury Wines Estates and I'm doing very well on them, so if you want a tip, buy TWE. As the US economy recovers they will gradual.ly improve and the will be a very tempting morsel for any international buyers who wants to get their hands on Australia's best brands. Did I hear China?
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