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EDJAN IT 15 IO N The e-magazine created especially for active spread bettors and CFD traders

Issue 36 - January 2015

Top Picks For 2015 Trading ideas for the upcoming year

www.financial-spread-betting.com

THE uK’S ONLY FREE ONLINE FINANCIAL MAGAZINE! RuSSIAN BEAR TO RuSSIAN BuLL? BY FILIPE R.COSTA

ZAK MIR INTERVIEWS ROB PROCTOR OF AuDIBOOM

JAMES FAuLKNER’S 3 SMALL CAP PICKS FOR 2015

THE BEST OF THE EVIL KNIEVIL DIARIES

AND MuCH, MuCH MORE - PACKED FuLL OF TRADING IDEAS FROM ALL OuR CONTRIBuTORS!


Feature Contributors Alpesh Patel Alpesh Patel is the author of 16 investment books, runs his own FSA regulated asset management firm from London, formerly presented his own show on Bloomberg TV for three years and has had over 200 columns published in the Financial Times. He provides free online trading education on www.alpeshpatel.com.

James Faulkner A true stockmarket anorak, James Faulkner began investing in the stock market in his early teens. James is a devotee of the PEG-based growth investing model pioneered by Jim Slater in his seminal book, The Zulu Principle, while also being t1ps.com’s resident economic ‘guru’. James is an Associate of the Chartered Institute for Securities & Investment and holds the CISI Certificate in Investment Management.

Jim Mellon Entrepreneur and former fund manager, Jim Mellon, is worth an estimated £850m according to the Sunday Times Rich list. With a substantial international property portfolio and interests in a variety of companies Jim is a highly experienced and successful investor.

Samuel Rae Having completed his Economics BSc Degree in Manchester, Samuel Rae quickly discovered that the retail Forex industry was for him. His personal trading style combines classic candlestick analysis with a simple, logical and risk management driven approach to the financial markets - a strategy that is described and demonstrated in his best selling book, Diary of a Currency Trader.

Richard Gill SBM Editorial Director Richard Gill, CFA, is a smaller companies specialist with an investment philosophy focussed on cheap growth companies operating in booming sectors. He was a judge at the 2013 and 2014 Small Cap Awards.

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Editorial List EDITORIAL DIRECTOR Richard Gill

Foreword Going into 2015, the backdrop is a familiar one for us traders. Menacing geopolitical issues, an ongoing meltdown in precious metals, the Eu suffering an insoluble structural breakdown, China struggling to maintain growth and Japan fighting to generate inflation.

EDITOR Zak Mir CREATIVE DESIGN lee Akers www.cfdmedia.co.uk COPYWRITER Seb Greenfield EDITORIAL CONTRIBuTORS Alpesh Patel Filipe R Costa Simon Carter James Faulkner Samuel Rae Dave Evans Andre Minassian Jim Mellon Maria Psarra

Disclaimer Material contained within the Spreadbet Magazine and its website is for general information purposes only and is not intended to be relied upon by individual readers in making (or refraining from making) any specific investment decision. Spreadbet Magazine Ltd. does not accept any liability for any loss suffered by any user as a result of any such decision. Please note that the prices of shares, spreadbets and CFDs can rise and fall sharply and you may not get back the money you originally invested, particularly where these investments are leveraged. In comparing the investments described in this publication and website, you should bear in mind that the nature of such investments and of the returns, risks and charges, differ from one investment to another. Smaller companies with a short track record tend to be more risky than larger, well established companies. The investments and services mentioned in this publication will not be suitable for all readers. You should assess the suitability of the recommendations (implicit or otherwise), investments and services mentioned in this magazine, and the related website, to your own circumstances. If you have any doubts about the suitability of any investment or service, you should take appropriate professional advice. The views and recommendations in this publication are based on information from a variety of sources. Although these are believed to be reliable, we cannot guarantee the accuracy or completeness of the information herein. As a matter of policy, Spreadbet Magazine openly discloses that our contributors may have interests in investments and/or providers of services referred to in this publication.

And just in case you thought it was a party here in the UK, we have a General Election of which Einstein would be struggling to forecast both the result and its implications. In fact, the irony of these factors affecting the financial markets is that, aside from the General Election and the recent plunge in the crude oil price, all of the above are very similar to the beginning of 2014. Considering that, at the time of writing, Wall Street is once again at towards its highest ever levels, it would appear that most of the so called negative fundamentals are sector specific and may not be able to hurt equities as a whole. How do we make sense of this? I have the idea that if all the nasties of which we are aware have still not prevented record highs for the major world stock markets, then these negatives are not actually that negative. The other rather obvious thing we should remember is that interest rates may be threatening to go up, but so far, despite more than a year of warnings/“forward guidance”, nothing has materialised. Even better, when the markets do get into a spin in terms of the easy money era ending, the Federal Reserve “blinks” and says it will not raise rates. Indeed, one could be forgiven for thinking that the US central bank’s remit is also to maintain the stability of the stock market as well as the money markets. But of course, the start of the year is characterised by everyone and their mother making calls on stocks, equities and currencies. No matter how qualified or financially literate they are. Having been familiar with this particular variety of pinning the tail on the relevant donkey I would venture to suggest that the only thing that really works is to think of what would be absolutely ridiculous and then either double or halve it. On this basis the FTSE 100 will hit 8,000 plus by March, crude oil will be below $30 and the euro will be up to $1.40 in the wake of a Greek exit from the EU! Back to the magazine, in the first edition of the year we provide our own views on what will happen in the markets in 2015, but in the usual analytical SBM way – devoid of the irrational sensationalism of other less credible publications. And as part of our ongoing commitment to provide a solid link between companies that traders and investors are actually interested in/fascinated by, we have Rob Proctor of AudioBoom (BOOM) in the interview seat. All the best for January and 2015. Zak Mir

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Contents

Three small cap picks for 2015 James Faulkner of t1ps.com looks at three small cap stocks set to do well in 2015.

44 Binary Corner

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14 18 25 52 58 64

Dave Evans of binary.com examines trading opportunities surrounding the potential “Grexit� from the Euro.

The Best of the Evil Diaries Highlights of what infamous short seller Simon Cawkwell (aka Evil Knievil) has been trading and gambling on in recent weeks.

Fund Manager in Focus Paul Tudor Jones of Tudor Investment Corporation is in the spotlight this month.

Mellon on Markets Read the latest thoughts and trading ideas of multi-millionaire investor and entrepreneur Jim Mellon as he looks forward to 2015.

The Global Economic Outlook for 2015 James Faulkner of t1ps.com looks at the threats and opportunities in the investment world we should be looking out for this year.

Andre Minassian - on the Markets Andre Minassian, CEO at www.clevergamesuk.com, provides his predictions for the year ahead.

School Corner - Overtrading Maria Psarra, Head of Trading at Prime Wealth Group, looks at how to avoid being trigger happy in your trading strategy.

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From Russian Bear to Russian Bull?

Zak Mir’s Monthly Pick SBM editor Zak Mir takes a technical and fundamental look at Randgold Resources.

Filipe R. Costa examines the upside case for the Russian economy.

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Zak Mir Interview SBM editor Zak Mir talks to Rob Proctor, CEO of AIM listed private investor favourite Audioboom.

Currency Corner Samuel Rae discusses where he thinks the major forex pairs will head in 2015.

Technology Corner SBM’s resident technology specialist, Simon Carter, takes a look at which new technological developments are set to take off this year.

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Alpesh Patel on the Markets

95

Book Review

98

Markets In Focus

Fund manager Alpesh Patel asks what effect the current Euro crisis could have on the UK.

Zak Mir reviews The Future Is Small by Gervais Williams.

The major markets movements in December.

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Zak Mir Interviews

ZAK MIR INTERVIEWS

ROB PROCTOR

This month Zak interviews Rob Proctor, CEO of AIM listed Audioboom, the digital social media audio platform. Audioboom is a free platform that enables the creation, broadcast and syndication of audio content across multiple global verticals. AdLarge coincidentally bought their first campaign on the day we signed with Geico, the US auto insurance company, who actually came through with a 24 week order. This basically took up all of our US inventory for the next six months. So the commercial side is great there.

Zak: Rob Proctor, you are CEO of AudioBoom – a popular company amongst private investors and many others. You have just updated the market with some news, could you go through that for us? Rob: We had four main pieces of news go out in December. Signing a deal with Amazon Audible was a great coup for us. This will see us bring pretty much the whole of that library onto our platform. People can then listen to large chunks of that for free, and then obviously they can move forward and buy that content. We will make some sizeable revenues off the back of that deal, which is great. And we have commercial deals with AdLarge in the US, who are the largest media sales company, and Global Radio (UK) over here. Plus we also have Triton on the commercial side in the US.

We also put out our year end trading update, showing that we hit all of our figures, in fact exceeded most of them. This included registered users, where we were ahead. Our costs are absolutely in line with where Arden Partners (our Nomad and broker) projected six months ago, even including our increased burn. Since then we have had new funding in to accelerate what we are doing. Then we have just had a big partner update with Astro, Malaysia’s biggest broadcaster, coming on the platform. We have extended our relationship with Sky, and have two permanently embedded dedicated staff with SkySports and have just put on SkyNews. So there is a whole raft of great content partners coming on board. Zak: I would just like to step back from the recent news now. AudioBoom has been one of the most popular IPOs of the year, with a lot of buzz on the bulletin boards.

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Rob Proctor

But surprisingly enough it would appear that some people still do not understand exactly what you do. You have been labelled as the YouTube of audio. But how would you define what you do? Rob: There are some older articles which describe us as the YouTube of audio which are three to five months out of date now. Internally, and certainly some of our bigger investors are saying to us, that we are more like the Netflix of audio. We are not a UGC (user-generated content) platform, this is all about professional content. Content that is created for digital: so it is short, it is quick, it is engaging. It is easily shareable, so it will go viral on social. That is the consumer facing piece of what we are doing, which is clearly very important. But actually the commercial things behind what we are doing are very different from companies like YouTube, Facebook and Pinterest. We have set out from day one to work with the best content partners, and in providing functionality we allow them to run back that audio on their own site. At that point we can run the pre-roll and the post-roll graphic display advertising on our partners’ websites, which means we can monetise literally from day one.

Zak: So, in a way it is a more efficient model going forward than the YouTube analogy implies? Rob: Efficient in its way. From an AIM and a capital markets point of view it is much more aligned and efficient as it allows us to get to monetisation, break-even and profitability much sooner than any social media company. Facebook was four, five, six years before it even looked at monetisation. Snapchat is now valued as much as $5bn – they have no revenue model whatsoever. Clearly we are on AIM and do not have the luxury of that. So our model has been developed to allow us to monetise externally on our partners’ websites, to our aggregated network. This keeps the user experience on our own mobile products completely ad free, so we can grow the user number. The terminal value of this business is going to be judged on the number of registered users we have on our mobile products. But if we put advertising in there on day one, clearly that is a barrier to entry for users. So we are trying to come up with a hybrid model, we think it is a smarter model. Certainly with the commercial partnerships we are signing, it is one that the market is accepting in terms of media planners and buyers. So it is working for us right now.

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Zak Mir Interviews

Zak: When do you think the sweet spot in terms of what you are trying to achieve will come in here? Is it a year away, two years away? What is the timeline on that? Rob: It depends on what you are classing as a sweet spot. In terms of revenues generation, that is happening today. Certainly from January forwards you will see us produce revenues through all of our partners, through all of the touch points we have. Even on Facebook and Twitter, where we can also run advertising. For the first time in their history they can monetise all of the social traffic that they are getting.

“we have a huge marketing campaign for Q1 2015 which will see us spend upwards of £1m in the US, UK and Australia.” Zak: So you are actually helping others? You are giving them a better business model? Rob: That is actually the way the model works. Especially for our content partners in newspaper or magazine publishing who have seen their revenues eroded over time. Having put their digital content on Facebook or Twitter, we now give them a way of monetising that content. That is the whole idea of the SaaS (software as a service) model, and that is what we have built from. Now we get into the consumer piece of what we are doing. We have had nearly half a million installs of our app in three weeks. We know the consumer piece is working, and that is going to grow rapidly. Our hope is that we get to a point when we go viral on the mobile product, and then the growth is going to be exponential. To fuel the pump on that we have a huge marketing campaign for Q1 2015 which will see us spend upwards of £1m in the US, UK and Australia. That is online, offline, ambient, on the tube, on-air with our radio partners etc. Obviously we can leverage really good value from on-air radio advertising because we partner with all the world’s biggest radio stations.

Zak: Even as a casual observer, will I start to notice AudioBoom’s presence on my journey around the internet? Rob: Definitely. If you are a user of the Guardian Life blog, the Telegraph podcast, or on SkySports or SkyNews, you will see us. We only raised our money two and a half months ago. I don’t know what the expectation in the market was in terms of how quickly we would grow off of that. But given our team of twenty around the world at this point, they have done a great job. Zak: That is a point to touch upon. Managing expectations is probably the greatest challenge facing any CEO. You do not want to down play it, you do not want to play it up too much. You have got to get it somewhere within the “Goldilocks” zone. We have seen the share price, which is not necessarily a good indicator of value or sentiment, oscillate from around 4p to as high as 18p recently – it is somewhere in the middle now. Is there currently a fair value for AudioBoom from your perspective? How do you see things? Rob: Within the internet sphere, you can see other companies out there having a value per user basis – $130 at the top end, down to $35 for the small social type platforms. Clearly you need scale to justify value per user, as it gives you the reach in the media sense. I think we are getting to the point where we have that kind of scale. So I think you could easily attribute a value of $35-40 per user today. Zak: Is it something of a myth in the tech area that there are no reliable gauges of value? Rob: There absolutely are. One thing I was told when we came onto the market is that your value is determined by the market and that it will always give you a fair value. Value can be based on a registered user basis. If you are going to take that as the standard, then you can use that standard to value up. What that standard is, whether $30 or $50 or $100, is open to question. Given the range today, I think we are at the bottom of a valuation which reflects our 3.1 – 3.2 million users. If you look at monthly active unique users of 18-20 million to all of the touch points and people accessing our audio through all of our partners, then you could be looking at a market cap of £200-£300m. But then again you need realistic expectations. Nevertheless, at $30-$40 you are within range.

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Rob Proctor

Zak: Are you conscious that the AIM market and private investors are very impatient by nature? Is there pressure on you to hurry up the process? Rob: The pressure is on us internally which is why we have developed this model to monetise off site. That might be via Sky or the Guardian if we are running the ads through a distributed network that allows us to monetise today, and we are certainly moving forward with that through the deals we have already signed. This means we don’t have to run advertising on our own mobile product which means we can grow registered users and be valued on that basis. So I hope we are capturing the best of both worlds. There is an expectation on AIM to go straight to revenue and straight to profit and all that, which I get. I have been in digital for 20 years. I know how to make money from these businesses. Everybody should appreciate that fact at this point. We have put the systems in place to make money from this business. And we will achieve that through 2015, I have no doubt.

Zak: It is Christmas 2014 now. What is your ideal position by Christmas 2015? Rob: The ideal position is probably 5 million registered users. Probably 30 million active users. Maybe more on the monthly active users, depending on how the new content partnerships move forward in the US. I would see us with revenues at the end of this year in line with the notes in the trading update. We are going to be at the £2.8m revenue mark (for the year to November 2015). That is certainly what we are shooting for. I see absolutely no reason why we shouldn’t do that. We are currently signing media at a run rate which certainly puts us in that ball park. Our analysts are happy with that, and we are certainly very happy internally that we are going to hit that.

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The Best of the Evil Diaries

THE BEST OF THE

Evil Diaries

The man the Daily Mail dubbed “The King of the Short Sellers”, Evil Knievil (aka Simon Cawkwell) is Britain’s most feared bear-raider. He mostly famously exposed the fiction that were the accounts of Robert Maxwell’s Communication Corporation, an event which helped to earn his pen name.

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The Best of the Evil Diaries

A big man with a bigger reputation, Evil Knievil famously made £1 million by short selling shares in Northern Rock during its collapse. He also uses his knowledge and experience to buy shares, often resulting in the same devastating effect.

But quite how this greatest confidence trickster of all British governmental history attracts encomia at this time is beyond me.

Three times a week Evil provides his thoughts and musings on the markets only at www.theevildiaries.com. He doesn’t just deliberate about the financial markets on The Evil Diaries, but also comments on politics, current affairs, which horses/sports bets are his latest favourites, with the occasional film and book review thrown in for good measure.

I am staggered by the insouciant reaction of Foxtons (FOXT)’s share price. On Wednesday I sold again at 150p and I now see that the mid price is 154p. Given that Foxtons was losing money anyway before the Autumn Statement the position now must be dire.

Here we take a look back on the highlights of Evil’s diaries in the month of December.

3rd December 2014 On Monday evening I welcomed Ignacio Salazar of Orosur Mining (OMI) to my home. He was in good form. The debt is clearly well under control and the improvement of the company is proceeding apace. Cash remains tight given the current gold price but prospects are improving as reserves are expanded and expanded. However, it tells one a lot about market conditions when the Anillo deal, surely worth 1p+ a share, is totally ignored. One can see how Cantor propose a target price of 32p even though I cannot foresee a dividend any time soon. Tyratech (TYR)’s share price has been slipping for weeks. Yesterday’s RNS was therefore not entirely surprising in that it is now announced that sales and profits will be missed. But the underlying game is not altered. For the whole shebang is capitalised at £13m, which could yet prove to be peanuts. That noted, is it really beyond the wit of man to consolidate TYR and TYRU?

5th December 2014

Tax avoidance for novice property sellers: consider splitting the property into two or more flats and put each disposal beneath the punitive stamp duty impact bands.

8th December 2014 It’s taking time to break down but Rare Earth Minerals (REM) is doing exactly that. As with all David Lenigas’s companies the announcements keep coming thick and fast. That is of course consistent with David himself. He remains an agreeable fellow, I hasten to add. Rare Earths is now 0.99p bid. Fitbug (FITB) is still a sell since I simply cannot see how the sales that they might achieve over this Christmas can begin to justify the price. Social note: the man who would have been Regent had the current queen succeeded to the throne before she came of age, the late Duke of Gloucester, was a fellow of simple tastes. Seated adjacent to a judge at some dinner he remarked “Done any good judgin’ lately?”. On another occasion, he, no fan of opera, found himself seated in the Royal Box at Covent Garden enduring Tosca. When the heroine hurled herself from the ramparts in Act 3 there was a respectful silence from the audience at which point the Duke could be heard to remark “Well, if she really is dead, we can all go home.”

10th December 2014 I do not wish to be thought particularly schoolboyish but, given that UKIP’s national secretary, now charged with sexual harassment, is called Roger Bird, nobody can claim that he/she was not warned.

Anyone would think that Gordon Brown is leaving the House of Commons a respected man.

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The Best of the Evil Diaries

The chart service had pointed out latish last week that a gold bull market was to hand, along with the miners, especially junior miners. Yesterday, it emerged. If gold hits $1,300 then the effect on the likes of Orosur Mining (OMI) will be electric.

15th December 2015 Sir Max Hastings declares that torture doesn’t work. What he in fact should have said is that torture does not work in his experience. And that is the point: he has no experience. Never having tortured anybody in my life I am perhaps equally unqualified to comment. But it seems unlikely that torture is incapable of yielding beneficial intelligence which might otherwise be denied to our armed services. What is really happening here is that amongst otherwise seemingly sensible people there has been an outbreak of sentimentality based on willfully misplaced optimism. Tesco (TSCO) is continuing to unravel. Now they are selling off surplus property. There’s a lot of it about. The intangibles figure of £4bn is for the chop. The property write offs could easily exceed £10bn. Tesco had best get on with its rights issue. To raise £4bn? It could be more. It has been pointed out to me that $60 oil is not good for the E and P companies. However, I am also told that the geology at Pantheon Resources (PANR) is good and works at $35. Perhaps this is a buy at 14.5p.

However one looks at the figures, Polo is ridiculously cheap. Cash or its equivalent was circa 8p a share.

22nd December 2014 I hear that circa ten Mirror journos have been arrested pending phone hacking trials and, more importantly, so has Piers Morgan. I have always thought that he is a nasty bit of work since I have not forgotten events at Trinity Mirror (TNI) fifteen years ago which led to James Hipwell getting a custodial sentence. This was a show trial initiated by the buffoons at the DTI, presumably under Patricia Hewitt’s control, and mishandled by the judge, Sir Jack Beatson QC, who was so thick or willfully New Labour as to be unable to see that the Slickers column was just a sustained joke which could never be taken seriously.

29th December 2014 Victoria Oil and Gas (VOG) has this morning announced a considerable extension to its sales of gas in Cameroon. Yet again, this company is shown to be daily growing more and more solvent. What should the shares be standing at now? I do not know but suspect that 200p would be more in point than the current 60p or so. Elsewhere in Cameroon, Bowleven (BLVN) has put its Etinde deal to bed. It’s been overshadowed by Cameroonian delays and, of course, the collapse in the oil price. But the fact is that there is no debt and cash alone exceeds the current share price, 32p. Still time to climb aboard. Finally, the point about City Link is that it was never possible for its directors to do other than they have. Leaving aside insolvency laws and what is known as wrongful trading which in a sense take any possibility of a kindness to employees decision out of the directors’ hands there is the further residual duty (breach of which renders the directors liable to civil suits) which is that directors must act on behalf of shareholders and creditors, maximising the returns to both groups. Clearly, stopping deliveries on the day before Christmas is to take advantage of the seasonal peak and avoids losses immediately thereafter. QED.

17th December 2014 Polo Resources (POL) have today announced their up to date TNAV figures. There is a lot of unquoted stuff about but Polo declares that TNAV as at 12th December was 27.2p per share.

For a free one month trial to access all of Evil’s Diaries, sign up via the advert to the right.

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Fund Manager In Focus

FuND MANAGER IN FOCuS

PAuL TuDOR JONES II

“i believe the very best money is made at the market turns. everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. well for twelve years i have been missing the meat in the middle but i have made a lot of money at tops and bottoms.” paul tudor Jones ii Unlike many investors and fund managers, for whom following the market trend is their core business, Paul Tudor Jones II (PTJ) is a true contrarian who doesn’t like to go with the crowd. Instead, he is always looking for the best opportunities, in the form of market turning points. While seeking turning points is believed to be a risky business, it needn’t be that way, as PTJ is not exactly a risk-seeker. In fact, he is one of the most risk-averse fund managers, for whom diversification is the most important concept in the investment business. He believes that if an investor searches for the best opportunities, it is always possible to open several small positions with the brightest prospects without any need to engage in too much leverage. He believes that a sound investment management strategy starts with capital preservation, as playing defensive (in a business where most players stay solvent for a short time period) is the only way to make money in the long run.

The main goal is to stay in the game as long as one can and to invest only in those assets “with tremendously skewed reward-risk”. This behaviour has rendered him a top position in the Forbes Billionaires list with a fortune estimated at $4.3 billion (£2.76 billion).

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Paul Tudor Jones II

“HE NOT ONLY LEARNED HOW TO TRADE SUCCESSFULLY BUT ALSO HOW FRUSTRATING THE BUSINESS CAN BE AT TIMES, IN PARTICULAR WHEN YOU LOSE MONEY.”

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Fund Manager In Focus

Thrilled with the Exchange Action

He was looking for real skills and excitement that can only be achieved through the emotional ups and downs of real trading.

PTJ was born in 1958 in Memphis, Tennessee. He studied at the Presbyterian Day School, an all-boys elementary school, before attending the University of Virginia, where, at the age of 22, he graduated in economics. His skills were not only analytical but also physical, as he was also a champion in welterweight boxing.

The Rise of a Star

In 1976, just after graduating, PTJ went to E. F. Hutton & Co. to become a broker. When he first saw the interaction on the trading floor of the commodities exchange, he was thrilled with it and quickly understood what he was going to do with his life. He was looking for action, for interaction between people. Anything that required completing a task alone was boring for him. The experience he collected as a trader led him to try his luck alone. He invested his own money very successfully for two and a half years but he got bored of doing it by himself. He wanted the action which came from the interaction of a trading floor. He was then advised to apply for a job with Eli Tullis, an important commodity broker in New Orleans, who accepted him as a trader and mentored him in trading cotton futures at the New York Mercantile Exchange. That was one of the most important professional experiences he had, as he not only learned how to trade successfully but also how frustrating the business can be at times, in particular when you lose money. The importance PTJ attributes to diversification and capital preservation is eventually a consequence of the experience he got from Eli Tullis.

Packing the Bags for Business School In the early 1980s PTJ then applied for the Harvard Business School to extend his range of skills. He was accepted and had everything packed to go when he realised that what he was looking for was not exactly taught at business schools. “This is crazy, because for what I’m doing here, they’re not going to teach me anything. This skill set is not something that they teach in business school.” He ended up regretting his decision and giving up on the business school idea.

In 1986, PTJ was filmed in a documentary featuring a few traders, where he predicted a severe market crash. “There will be some type of a decline, without question, in the next 10, 20 months…and it will be earth-shaking; it will be sabre-rattling” he said. He was predicting the downturn based on the methodology used by Robert Pretcher, a wellknown market forecaster who is a strong advocate of the Elliot Wave Principle. He compared the market in the 1980s with the market during the 1920s and found a significant correlation. The pattern seemed very familiar and he predicted a crash was about to happen. While at first he was mostly ignored, things changed when Black Monday arrived on 19th October 1987. That was a miserable day for almost everyone but him. Markets were completely crushed and the Dow Jones Industrial Average lost 508 points, retreating by 22.6%. But, PTJ tripled his money, as he was heavily invested in short positions. The documentary was then shown on public television in November of the same year. A video was released but very few copies still remain, as PTJ requested its removal from circulation. The few remaining copies do appear from time to time selling on Ebay for around $300 (£193).

“a trader should cut losses as soon as possible rather than add to losing positions in a desperate attempt to average the loss per share.” The huge profit he made in 1987 inspired him to become a philanthropist and led to the creation of the Robin Hood foundation, with the aim of helping to eradicate poverty in New York City.

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Paul Tudor Jones II

The charity has an important role in helping the city’s poorest neighbourhoods and it is funded by donations from many hedge funds.

A Sound Strategy PTJ is always looking for the best opportunities to trade, never takes too much leverage, and doesn’t risk too much in any single trade. In the past, when he was at the cotton trading business, he learned an important lesson regarding the frustration that comes from losing. In 1979, a single trade went so wrong that he needed to sell everything in his investment portfolio to accumulate a loss between 60-70%. “Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain”, he thought to himself at the time, and realised how important diversification is for a sound long-term investment business. The trading activity of Tudor Investment Corp, the company he founded in 1980, very well depicts how seriously PTJ is about diversification. During the last quarter, the hedge fund purchased shares in 900 companies and sold shares in another 500. Each company has a modest impact on portfolio returns.

The best profit opportunities are in betting against the herd, at market tops and bottoms, he believes. But it doesn’t mean one should keep on adding to a position when one realises the market top or bottom was not hit. PTJ is often seen in a popular picture where he is sitting in his office with a sign in the background depicting the saying: “Losers Average Losers” He believes a trader should cut losses as soon as possible rather than add to losing positions in a desperate attempt to average the loss per share. A loss will always be a loss no matter how low its average is. It certainly is better to show an average loss of 5% in a portfolio of $1,000 than an average loss of 3% in a portfolio of $2,000. He believes there’s always a better opportunity out there, which means that a fresh start is better than trying to fix something that already went the wrong way. An important metric PTJ always uses is the 200-day moving average. He believes that one should get out of anything that is below this moving average.

SP500-200MA CHART

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Fund Manager In Focus

Tudor Investment Corporation PTJ created his own business, Tudor Investment Corporation in 1980, with $1.5 million. The hedge fund is headquartered in the luxury of Greenwich, Connecticut and is dedicated to research and trading in fixed income, currencies, equities, commodities and derivatives trading in global markets. Strategies involve discretionary and quantitative global macro, equity long/short, market neutral and growth equity.

TUDOR PORTFOLIO LIST The flagship fund, Tudor BVI Global, has $10.3 billion in assets under management and has returned around 19.5% per annum. In 2013 the fund returned 14.3%, helped by winning bets in the Japanese stock market and by a declining yen.

While sometimes showing performance below the market, hedge funds like those managed by PTJ are much better positioned to preserve long-term capital and do provide insurance against market crashes.

The fund’s worst period was between 2010 and 2012 when it averaged just 5% a year. That comes as no surprise given the contrarian nature of Paul Tudor Jones. While many hedge funds have done very well in the period of quantitative easing just by following the trend, those who believed the market was becoming overvalued started protecting their portfolios against a potential crash, to come as the result of prices catching up with fundamentals.

While the average performance of the S&P 500 (including dividends) has been around 10.6% since 1986, Tudor Investment Corporation has enjoyed an average return of 19%. Had you invested £1 million with the company in 1986, you would have £109.6 million at the end of 2013. A similar investment in the S&P 500 would be now worth £15.2 million.

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Paul Tudor Jones II

ONE-MILLION-TODAY CHART

Final Comments Paul Tudor Jones II is one of the best fund managers in the world, in particular because of his sense of reality and aversion to risk. Instead of going all-in with the trend, Jones looks for the very best investment opportunities, those that offer a risk-reward of no less than 5 to 1. As he puts it, “What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose”.

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Mellon on the markets

MELLON ON THE MARKETS

RIP UP THE RULE BOOKS “Rip up the rule books, Head back to school, boys Open your eyes, and seize the day” Entrepreneur and financier Jim Mellon is a regular in the Sunday Times Rich List, with an estimated fortune of £850m in 2014. With a substantial international property portfolio and interests in a variety of companies, particularly in the alternative energy and biotech sectors, Jim is a highly experienced and successful investor.

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Mellon on the Markets

Once again it’s time – at the dawn of a new year – to rip up those rule books. The old certainties and nostrums of investment clearly don’t apply or work, and haven’t for some years. As we now know, most of that is due to the distorting effect of central bank/ government intervention in the markets. But of course, when a new central bank/politically written rulebook emerges, it too can be superseded – and that is what I think might just happen. For sure, this is not an easy time to be an investor, especially an active one. Hedge funds did really badly in 2014, as did most active managers. At no time in my investment career, sadly one far too long to contemplate, have I ever seen such a sharp dichotomy of directional opinion.

As I get older I try to focus on the most likely of outcomes in an uncertain world. In other words, because there is no way of predicting, with any degree of accuracy, the way in which politicians (who in many ways now dominate the economic direction of major nations, bypassing the good old standard of free markets) will act, we have to look for some anomalies or interstellar “wormholes”. All of the rest of us, excluding the money printing elites, are minor players in this massive game of chicken being played by the political classes almost everywhere. As such, we are much better off focussing on taking the scratchings from the floor rather than going for a big prize which might result in an unpleasant neck-wringing.

On the one hand, many think we stand on the brink of hyper-inflationary/deflationary ruin. On the other hand, some think the markets will sail on regardless, despite being generally overvalued. These views represent the polarised opinions of smart observers on both sides of the debate, and while both will be undoubtedly right in the long term, one side or the other will be long dead (at least monetarily) by the time its own view is justified.

“For sure, this is not an easy time to be an investor, especially an active one.” Weird World

What I mean by this is that the advent of the QE era has demonstrated that political power, when faced with its own demise in the face of economic collapse, will do ANYTHING to maintain some semblance of growth or stability.

Looked at from any historical angle, it’s certainly a weird world that we inhabit. Interest rates are at record lows in all major markets, or at close to lows. Economic performances are highly divergent, and commodities have mostly been crushed in the last year, with both oil and iron ore falling by about half. Notwithstanding a backdrop like that, (one better suited to Armageddon in the old rulebook), equity markets have enjoyed gains, albeit fairly stolid ones. As yet, the Grim Reaper of the Markets hasn’t yet appeared to end the asset bubble party, although there have been a few sightings of his menacing figure.

An example is the fact that the Bank of Japan owns a huge portion of the nation’s debt and has accumulated it in a way designed to drive long-term interest rates down to almost nothing. The same applies to the US, where despite the withdrawal of further overt QE earlier this year, there is no sign or indeed possibility of a shrinking of the Fed’s huge balance sheet at any stage in the foreseeable future, if ever. The same applies to the Bank of England, the PBOC in China etc. And all of them – with the exception I have yet to discuss, a sort of elephant in the room – stand ready to do it again if markets don’t obey their bidding.

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Mellon on the Markets

Now, whether or not markets will carry on doing the bidding of central banks for ever, even with enhanced amounts of QE or equivalent, is another matter. My own suspicion is that the illusory effect of asset bubble inflation will be uncovered sooner rather than later. When exactly, of course, is the big conundrum. But certainly, asset distorting government interventions do have unintended consequences which are now beginning to happen. The fall in the price of oil is partly due to the incredibly cheap money which was available to US fracking companies, who then produced oil and gas at below sustainably viable prices and whose weak balance sheets are now only just beginning to be exposed – with pretty awful consequences for some US states and local banks.

Even the peripheral countries of Europe are experiencing current account surpluses, largely in response to collapsed demand for imports. As oil importing countries, European nations also benefit from the fall in the price of oil.

But none of this should concern us. Let us rather focus on a small(ish) area where it seems reasonable to see opportunities.

Mister Draghi, who has developed a reputation of something of a market whisperer, knows that and he also knows that his best and most effective method of generating Eurozone growth is in devaluing the currency.

Recently, I attended a roundtable with two super smart investors, Max King of Invesco and Steve Russell of Ruffer. They both feel that the euro could be a stronger, rather than weaker, currency.

So far, so good. But my case rests on something else – the complete and abject inability of Europe to sustain growth and the lack of effective levers to enable it. Germany won’t allow mass QE, even though the bond markets are pricing that in, and the QE that is being undertaken today is a smallish effort in repairing impaired bank balance sheets in the Eurozone. There are only a few Euro banks that are viable – the rest are mortally wounded – although self-reporting good health to the rest of the world.

“There are only a few Euro banks that are viable – the rest are mortally wounded.” Indeed, Steen Jacobson of Saxo Bank has felt that for some time too. In contrast, I have been consistently bearish on the euro, and I remain so. Now, these guys are bright, so what is their story and what is mine? In the case of the first two managers, I think I am right in saying that their view is that the huge current account surpluses of the Eurozone do not indicate a lack of competitiveness, but rather a lack of demand, and in this they are correct. And they think that these surpluses will push the euro higher.

This has several positive features. It rebalances Eurozone competitiveness in machinery and cars vis-a-vis Japan. It might be slightly inflationary, which is to be welcomed, and it makes Euroland labour more attractive to inward investors. He might even intervene directly in the currency markets – actually, I think there is a good chance that he will.

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Mellon on the Markets

The alternative is that the euro enters a sort of surreal debt trap, where the cost of its sovereign and some corporate debt, even at absurdly low interest rates, becomes too high in the face of declining nominal GDP as true deflation sets in. If that happens, then credit worthiness comes into question and we really see a market rout. So, on the basis that we like to pick out the weaker ones in the herd, I suggest that we go short euro/ dollar (as we have been all year) and think about doing this by writing put options. I also like the idea of shorting a weak looking member of the Eurozone’s credit – shorting Irish or Spanish bonds makes a lot of sense to me for the forthcoming year. As to the rest of the world, my suspicion is that growth will remain sluggish at best, with China fessing up to much reduced growth. The best reflection of this I can find is to short the Aussie dollar (which we have been all year) and keep shorting it until it reaches equilibrium. Australia is beginning to exhibit signs of financial stress and its currency is way overvalued. India amongst the emerging markets has my vote, and I would could continue to avoid the emerging markets which are highly geared to US dollar strength, such as Indonesia, Malaysia, Thailand and South Korea.

“As to the rest of the world, my suspicion is that growth will remain sluggish at best.” Japan is in my sights again, and I forecast at least 20,000 on the Nikkei soon. I have taken off the yen hedge as everyone else has one, and the yen looks undervalued to me now. Gold and silver, but particularly silver, look attractive and are edging up a bit – normally a good sign for them and a poor sign for equity markets (the US is in fantasy land valuation territory).

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Mellon on the Markets

As far as stocks are concerned, here are my three picks for 2015: Summit plc. A uK company (where I am a director and shareholder) involved in researching compounds for use in Duchene Muscular Dystrophy.

Hewlett Packard, a dinosaur beginning to rise once again with a very promising ash technology in the works. The company will split in two soon.

Honda Motor of Japan. Good dividend yield, solid finances, well managed and geared to a weak yen. happy hunting and happy new Year! Jim Mellon

Jim Mellon will be headlining the Master Investor 2015 show, to be held on Saturday 25th April in Islington, London.

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From Russian Bear To Russian Bull?

FROM RUSSIAN BEAR TO RUSSIAN BULL? By Filipe R. Costa

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From Russian Bear To Russian Bull?

While investors in the US have welcomed the New Year with the finest French champagne, investors in Russia are looking to enter 2015 quietly. Most Russian investors will want to forget everything that happened in 2014, not least as the year echoes difficult events in the country’s past, such as the 1998 default and the collapse of the Soviet Union.

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From Russian Bear To Russian Bull?

Both the rouble and equities were decimated last year, as international sanctions and low oil prices hit the heart of the Russian economy. But it is during troubled times that the best investment opportunities materialise. While the turmoil will likely persist at the beginning of the year, I believe that the fundamentals point to a good opportunity arising for a mid-term investment in Russia.

In my view, the earliest investors to jump back into Russia are set to profit greatly from what is an undervalued equity market – one which on a market capitalisation basis is currently valued less than Apple.

RTS-VS-OIL CHART

The Road to Disaster During 2014, Russia was hit by two major international developments. The first was the result of its own government’s choices, while the second was an unfortunate macroeconomic event over which it had little control. We’re referring to the Crimean crisis and to the oil price crash here.

The dispute involving Russia and Ukraine over the control of the Crimean Peninsula, which culminated in its annexation by Russia, may have been a good political decision by Russia (at least according to the polls) but was a major economic disaster for the country.

The dispute involving Russia and Ukraine over the control of the Crimean Peninsula, which culminated in its annexation by Russia, may have been a good political decision by Russia (at least according to the polls) but was a major economic disaster for the country.

The crisis started on 21st February, when the Ukraine parliament removed President Viktor Yanukovych and appointed Oleksandr Turchynov as the new interim President. Russia didn’t recognise the change and referred to it as a coup d’état.

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From Russian Bear To Russian Bull?

The situation deteriorated very quickly as pro-Russian protests hit the streets in Ukraine, leading to violence. The Crimean parliament conducted a referendum on whether to join Russia, which led to an affirmative vote, but one that was not recognised internationally. Russia ended up occupying the Crimean Peninsula and the conflict escalated substantially. That was the beginning of an economic downturn for Russia as several countries, including the US and the European Union, applied sanctions which paved the way for capital outflows and to a deterioration of economic conditions. As if that were not enough, the oil price crash further impacted Russia. With Saudi Arabia not willing to lose market share to the rising fracking industry in the US, the oil cartel decided to keep production output unchanged, which led to a massive decline in oil prices. At the time of writing, the price of Brent Crude is down nearly 46% over 12 months, with WTI down by 43%. Such a decline in oil prices is badly damaging to the heart of the Russian economy, which depends heavily on its exports of energy products.

Weighting the Negatives The prospects for recession, high inflation, and further armed conflict led to a massive outflow of capital from Russia. To avoid the worst, the central bank tweaked its key interest rate five times by early December, hiking the rate from 5.5% to 10.5%. But with the rouble continuing to depreciate relative to the dollar, the bank surprisingly increased its key rate further, from 10.5% to 17% in an emergency meeting on 16th December. The move appeared to be so desperate that investors took it as a sign of weakness and promptly pushed the rouble even lower. At one point during the day the USD/RUB exchange rate hit near 80, resulting in an accumulated c.60% loss relative to the dollar over the previous 12 months. But afterwards, with the help of some unofficial capital controls and government intervention in the currency exchange markets, the rouble found a floor and recovered to a level above 50, still around 35% down over the year.

USD/RUB CHART

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From Russian Bear To Russian Bull?

The Russian economy is slowing sharply, not only due to the low oil prices and economic sanctions, but now also due to a very high interest rate aimed at preventing hyper-inflation and capital outflows. The Russian finance minister said a few days ago that GDP may contract by 4% in 2015 and that the budget deficit will most likely hit 3%. In order to defend the rouble, the country spent a large proportion of its gold and foreign reserves, which decreased from $510bn at the beginning of the year to slightly under $400bn. At the same time, inflation figures for 2014 recently came in at 11.4%.

…And Now the Positives Despite all the bad news I believe that Armageddon is already heavily priced into Russian equities. We shouldn’t forget that $400 billion in reserves is still a very significant level, in particular if we take into consideration that Russia is a resource rich country that can turn part of its assets into extra liquidity if needed. At the same time, debt-to-GDP is just 13.5%, which assures that the country can very well endure a few years of fiscal deficits without suffering any significant effect in terms of its debt position.

This is in complete contrast to most Western countries. After an initial knee-jerk reaction, the rouble and equities are now stabilising. The equity market as a whole looks undervalued and I expect a rebound in 2015. As Paul Gambles, managing partner at MBMG, puts it “To me, at those sorts of prices, it’s starting to look like there are - speculative admittedly - high risk opportunities”. When taking into consideration that Apple’s stock is worth more than the entire Russian equity market, he further adds “There’s a play on Russia just because of the pricing. I’d rather own Russia than own Apple, frankly”. While Apple is currently trading on a P/E ratio of 17 times, the MICEX index trades at less than 6 times.

RTS CHART

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From Russian Bear To Russian Bull?

“While Apple is currently trading on a P/E ratio of 17 times, the MICEX index trades at less than 6 times.� With the equity market largely undervalued and with oil prices now finding a floor, I believe that Russian equities look good value, even if investors have to take a view via options or other risk-limiting techniques. Additionally, I expect the EU to let sanctions expire without applying new ones, to decrease the burden on the Russian population, which has been severely hit already.

Overall, at the risk of entering before the bottom, I still think Russia is a good mid- to long-term play, as the market has been oversold and now has to catch up with reality.

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Zak Mir’s Monthly Pick

ZAK MIR’S MONTHLY PICK Sell Randgold Resources (RRS): Below 4,500p Targets 3,500p Recommendation Summary

Technicals

It is unfortunate that 2015 will be the fourth year in a row where bulls of precious metals and mining stocks will be looking for a floor to the early decade burst bubble. The prospects for a lasting recovery, either for gold or any commodity, in the wake of massive dollar strength towards the end of 2014 and increasing deflationary threats around the world look unlikely.

Although some traders may like to regard the present technical position at Randgold Resources as being half full rather than half empty, there are several reasons for looking at the daily chart here as being a bearish one with further downside risk. In fact, the dominant charting event here is from as long ago as the beginning of September, with an unfilled gap to the downside. This was at the top of a falling trend channel from June and just below the 50-day moving average, which was then still above £50. The usual technical takeaway on such a move is that gaps like this pressure the price action for months following their appearance, and this has so far been the case.

But the lesson from the market is always to keep an open mind. Nevertheless, it would appear that on both a technical and fundamental front a period of underperformance looks set to continue at West Africa focused Randgold Resources, especially while the shares remain below post September resistance at £45.

The second major negative on the Randgold Resources daily chart is the way that, since the September breakdown, the £45 zone has acted as stubborn resistance. This suggests that the overall call here is that we should regard the shares as a short while the 200 day line caps the price action, with the target painted as being as low as £35 – the floor of the 2014 descending price channel.

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Sell Rangold (RRS)

“The [gold mining] industry is clearly stuffed at $1,140 and it will be a bloodbath at $1,000.�

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Zak Mir’s Monthly Pick

Cautious traders would wait on a weekly close back below the December support zone, just under £40, before regarding the shares as a sell. That said, the way that there have been more than three failures at a November RSI resistance line, and the RSI itself now being below 50, would suggest that the price action will remain negative over the near-term.

RRS CHART

Recent Significant News 6th November (Telegraph.co.uk)

6th November (RNS)

The boss of the largest London-listed gold miner said his industry is suffering and is facing a “bloodbath” if the price of the precious metal sinks to $1,000 an ounce.

The ongoing ramp-up of the Kibali mine led a strong overall performance by all of Randgold’s operations in a quarter in which production reached a new record level and costs were well contained.

Mark Bristow, chief executive of Randgold Resources, said: “The [gold mining] industry is clearly stuffed at $1,140 and it will be a bloodbath at $1,000.” The price of gold is testing four-year lows. It fell again today – down 0.4pc to $1,142.8 per ounce at midday.

Results for the three months to September, released today, show production of 299,320 ounces, up 8% on the previous quarter. Production for the first nine months of the year was up 37% on the comparable period in 2013, reflecting Kibali’s contribution and the impact of expansion and upgrade projects at the other operations. Total cash cost per ounce of $692/ oz was well contained, down 1% on the previous quarter.

Mr Bristow, who was speaking at his company’s third quarter results presentation in London, said demand for gold is as strong as ever. However, he believes that the industry has failed to learn the lessons from a cyclical market and is “pumping out” unprofitable gold into the market after years of expansion.

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Sell Rangold (RRS)

“there is certainly plenty of scope to take a negative view on the company given the deflationary environment and questionable demand levels.” Earnings per share increased by 11% to $0.63 quarter on quarter, but profit was affected by foreign exchange adjustments and at $66.0m was just marginally ahead of the previous quarter. Profit from mining of $172.6m was up 6% quarter on quarter. By the end of the quarter, Randgold had returned to its debt-free status, having repaid its revolving credit facility.

While we may be far from the “bloodbath” levels below $1,000 an ounce which Randgold Resources CEO Mark Bristow has warned about, there is certainly plenty of scope to take a negative view on the company given the deflationary environment and questionable demand levels, especially in the wake of the massive spike in the US dollar seen in H2 2014.

24th October (Randgoldresources.com) Bamako, Mali – high alertness and careful planning prepared the Malian authorities to act swiftly to identify, treat and contain the country’s first confirmed case of Ebola, Randgold Resources chief executive Mark Bristow said today. Randgold owns and operates the Morila, Loulo and Gounkoto gold mines in Mali. Bristow said the company was in close touch with Mali’s national director of health and the regional health director at Kayes, where the case was identified, as well as with the relevant NGOs and the other members of the Ebola Private Sector Mobilisation Group.

Fundamentals While this sell recommendation accepts that, after such an extended decline for miners and precious metals in recent years, we are approaching levels where there is value to be had, the environment is still one which offers opportunities to the bears. Turning the argument around, the last thing that any trader or investor would wish to do to start 2015 is join the roll call of those who have called the end of the downtrend in this asset class and see their optimism smacked hard by the markets. While Randgold Resources is not necessarily as easy as a “the trend is your friend” situation, the simplicity of the sell call on the stock should not be ignored. Gold as it stands is hovering near the one year support zone, having probed below $1,150 at worst. This is a situation which will be making many producers uncomfortable to say the least.

True, it can be conceded that amongst leading gold producers Randgold Resources is one of the least ugly on a fundamental front – it is a debt free, low cost producer. But many seasoned observers of the stock market as a whole and this sector in particular will be aware that the markets are happy to tar companies with the same brush in times of uncertainty. Randgold Resources has been suffering from this phenomenon over the post summer period. The expectation is that unless sentiment, or indeed the gold price, changes in a markedly positive way, we can expect to see further declines in the share price. Happily, the cost of production at $692 an ounce is still well below the present level of the underlying commodity, but it is clear that the share price has been moving lower to anticipate a possible sub $1,000 an ounce gold price. As we have learned from the latest decline in the oil price, the process of re-rating can occur very quickly. This could especially be the case if Randgold’s premium rating relative to its peers is seen to be undeserved.

January 2015 | www.financial-spread-betting.com | 41


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Three Small Cap Stocks for 2015

THREE SMALL CAP STOCK PICKS FOR 2015 By James Faulkner of t1ps.com

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Three Small Cap Stocks for 2015

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Three Small Cap Stocks for 2015

Tristel (TSTL) Hospital-acquired infections (HAIs) are new infections that patients acquire as a result of healthcare interventions to treat other conditions. Although some high-income countries have national surveillance systems for HAIs, there is less data available from low- and middle-income countries. However, recent systematic reviews have estimated hospital-wide prevalence of HAIs in high-income countries at 7.6%, and in low- and middle-income countries at 10.1%. This is a sizeable and growing problem for healthcare organisations worldwide. HAIs result in prolonged hospital stays, long-term disability, increased resistance of micro-organisms to antimicrobials, massive additional costs for health systems, high costs for patients and their families, and unnecessary deaths. According to the World Economic Forum’s 2013 Global Risks Report, superbugs kill 100,000 Americans, 80,000 Chinese and 25,000 Europeans annually. The UK’s Chief Medical Officer, Dame Sally Davies, describes the threat from these “nightmare” antibiotic-resistant diseases as nothing short of “apocalyptic”.

Enter Tristel (TSTL). Based out of its manufacturing base in Cambridgeshire, the company develops proprietary infection, hygiene and contamination control products used by organisations in healthcare, pharma, personal care and animal care. Its patented chlorine dioxide chemistry is clinically proven and deployed in more than 400 UK hospitals. With 96% of its business derived from high-margin consumables (i.e. non-discretionary everyday items), Tristel has strong forward visibility and is therefore a highly profitable business. This also has great benefits for healthcare providers, as it helps reduce capital and operational spend at the same time as raising hygiene standards. Furthermore, more than 70% of sales come from proprietary products, meaning that the bulk of Tristel’s business is conducted on the back of its own internally generated technology. We believe that Tristel has created a unique position in high level instrument disinfection in the ambulatory care market as well as sporicidical surface disinfection in hospitals by focusing on chlorine dioxide.

Revenues from its instrument disinfectants for ambulatory care grew at a CAGR (compound annual growth rate) of 49% between 2005 and 2014; and revenues from its sporicidal surface disinfectants have grown at a CAGR of 72% between their first launch in 2007 and 2014. The firm also anticipates entry into new product segments in the near future. Specifically, the company is said to be looking at airway management (anaesthesia), skin, military medicine, pre-hospital, humanitarian aid and ophthalmology. Furthermore, its chlorine dioxide chemistry benefits from strong intellectual property protection as well as know-how. Patent lives extend up to 2031 and the firm continues to invest in a constant stream of new patent applications which are related to both new concepts as well as extensions of existing products. The firm was granted 37 new patents in 2013 alone, and 72% of revenues are now derived from products with IP protection. All this means that barriers to entry are high, and once embedded in hospital routine and best practice, Tristel products are hard to dislodge.

Purogene® liquid disinfectant

Financials Despite facing headwinds from a decline in revenues from its legacy gastro-intestinal endoscopy business, the group nonetheless generated strong top line growth (+27.6% to £13.47m) in FY14 (to June).

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Three Small Cap Stocks for 2015

TRISTEL CHART

Revenues benefited from management’s decision a few years ago to expand overseas and enter new verticals, such as the instrument disinfection market for out-patient departments (e.g. ENT, cardiology, ultrasound, urology, GI physiology and ophthalmology). The combination of strong revenue growth, an improved gross margin (up from 66.4% to 69.8%) and operational gearing, resulted in EBITDA growth of 78% to £2.7m. Excluding amortisation of intangibles, share-based payments, non-recurring items, interest and results from associates, operating profits increased by 114% to £2.3m. Profit before tax for the year was £1.8m, versus a loss before tax of £1.75m in 2013.

What’s it worth? The market consensus is for double-digit growth to continue into the foreseeable future. House broker finnCap forecasts adjusted pre-tax profits of £2.3m on revenues of £15m for FY15, rising to £2.6m and £16m respectively in FY16, although it “remain[s] firmly of the opinion that the risks to our forecasts remain on the upside.”

“barriers to entry are high, and once embedded in hospital routine and best practice, Tristel products are hard to dislodge.” Its adjusted EPS estimates place Tristel on a P/E multiple of 17.9x, falling to 15.6x, which looks good value against a current year sector average of c.19x, not to mention Tristel’s superior earnings growth prospects – 35.2% in FY15 and 14.9% in FY16, according to finnCap. We also like the clean balance sheet and net cash position, which presumably leaves the company well placed to carry out bolt-on acquisitions should any suitable opportunities arise.

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Three Small Cap Stocks for 2015

Sprue Aegis (SPRP) Founded in Coventry in 1998 and listing on the old OFEX market back in 2001, Sprue Aegis has grown over the years to become a leading supplier of home safety products and manufactures one of the world’s smallest carbon monoxide sensors for use in carbon monoxide alarms. Products are designed in-house, with the majority of manufacturing being outsourced to contractors in China. From its initial product, the Fire Angel smoke alarm, which fits into a standard ceiling mounted light fitting, the company has built up a strong presence in the UK retail and trade market as a supplier to the UK Fire & Rescue Services, and has also made significant progress in Continental Europe. Its status as sole supplier to a number of major retailers in the UK provides significant barriers to entry, as do its 68 granted patents, further 27 patents pending globally and safety certifications for its products from various regulatory bodies.

Trading seems to have picked up markedly since the end of June, with the company’s order book said to have grown “considerably”, largely driven by a significant increase in smoke detector orders received for the French market. As a result, management now expects that results for the year ending 31st December 2014 will exceed market expectations. With a significantly strengthened balance sheet (following the recent £8m placing, the firm had net cash of £11.7m at the end of June), we believe that the company looks well positioned to carry on taking advantage of opportunities in Europe, especially France, where new legislation requires that all domestic properties are fitted with a working smoke alarm by March 2015. In addition, Berlin (population: 3.3 million), Brandenburg (population: 2.5 million) and Saxony (population: 4 million) are yet to enact smoke alarm legislation, which is expected to provide additional growth in sales in the near future.

Recent Trading

What’s it worth?

Alongside its 2013 results, the company announced a placing to raise approximately £8m (£7.2m net) which will be used to provide additional working capital to support sales growth across Sprue’s markets, particularly in France, and to fund product development. Also of note is the fact that Sprue has secured North American UL component recognition on its Gen 1 carbon monoxide sensor to sell that component in products in North America, which could in time pave the way for the company to enter the huge US market. Closer to home, sales growth is set to be driven by product replacement cycles on the continent and further legislation in the UK. All in all, investment in product development increased by 40% in 2013 to £1.4m, which underlines Sprue’s continued commitment to innovation and its drive to remain at the cutting edge of the industry.

Sprue has an excellent track record of revenue and profit growth over the past six years. Between 20062012 revenues grew at a compound annual growth rate (CAGR) of 49.12%, with pre-tax profits growing at a CAGR of 32.84%. Since announcing a maiden dividend in 2009, the annual payment has risen from 0.5p to 6p per share. With plenty of new products in the pipeline and international expansion on the cards, we believe Sprue is well placed to continue to grow in the coming years. Following the recent trading update, house broker Westhouse now anticipates earnings growth of 53.8% in 2014 to 16.8p per share, which implies a current rating of 19x. It has also pencilled in growth of 19.3% and 25.9% for 2015 and 2016 respectively, which implies a forward rating of 16x falling to 12.7x.

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Three Small Cap Stocks for 2015

SPRUE AEGIS CHART

A healthy prospective yield of 2.5% rising to 3.1% for 2015 and 3.8% for 2016 means the stock also has income as well as growth attractions.

These are good metrics for a business that benefits from a defensive and reliable source of demand underpinned by legislative and regulatory action with significant barriers to entry.

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Three Small Cap Stocks for 2015

Amino Technologies (AMO) Amino Technologies is a market-leading operator in the rapidly growing internet TV market, providing complete hardware and software solutions which enable the delivery of television content to viewers via a broadband internet connection. The core set-top box business caters to IPTV (internet protocol TV) service providers, while there is also a nascent product line aimed at the OTT “over the top” market, which enables the delivery of video content from the open internet by both IPTV providers and satellite or cable service providers. The latter is a huge growth market estimated to be worth $20bn by the end of 2014, according to research from MRG. Importantly, the “heavy lifting” of the product investment stage appears to be complete, enabling older IPTV products to be phased out while existing customers are encouraged to migrate to the new boxes. Furthermore, initial discounts given on the OTT products will be phased out, thus pointing to future margin progression.

Where market demand is for a lower specification device – for example in Latin America and Eastern Europe – Amino provides a highly cost-competitive and robust solution which has gained good traction with existing and new customers. Meanwhile, where customers require a more feature-rich, high performance device for specific customer segments, Amino has likewise introduced the new Live Advanced Media Platform to meet these needs and the growing demand for multiscreen delivery around the home. At the same time, a new mainstream device – the A150: targeted at Amino’s established customer base – was commercially launched into the European market during the first half of FY14. This includes improved System on Chip (SoC) performance, integrated apps and enhanced user experience capabilities.case been included at a conservative valuation). With a currency headwind looking set to turn into a tailwind in FY15, the shares appear good value.

Recent developments Much of Amino’s attention has lately been focused on broadening its product offering to cater for the latest developments within the home media space. An industry-wide move towards Internet Protocol (IP) as the means of delivering content between devices and around the connected home is opening up new opportunities for the company in its existing and adjacent markets. Many home media operators are in the process of (or considering) extending their service offerings to encompass greater functionality and sophistication. In response, a wider s olutions-based portfolio has been created to provide operators with a more diverse range of products to help drive new revenues and retain existing customers. While this new portfolio is expected to contribute to revenues from 2015, encouraging progress is under way with new set-top box products benefiting from enhanced performance, improved user experiences and value-added features. Amino has made particular progress in identifying different types of markets and tailoring its products to fit them.

Further out, and with a view to enabling operators to drive additional Average Revenue Per User (ARPU) from their customers, a new service layer based around home monitoring and control is to launch in the second half of the year in North America. Called Amino Home Reach, this new solution is easily integrated into both existing and recently launched set-top devices. Feedback from customer trials is said to have been encouraging, particularly in North America, where similar offerings from major operators and new solution providers are gaining traction and validating the market as a whole.

What’s it worth? Back in December Amino revealed that it expects FY14 profit to be ahead of expectations, after it made a return to revenue growth in the second half. Good cash conversion has also been achieved, further increasing the company’s net cash position to £20.8m (FY13: £19.5m), equivalent to 40p per share.

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Three Small Cap Stocks for 2015

AMINO TECHNOLOGIES CHART This was also after taking into account share buy backs to the value of £1.4m and dividend payments of £1.9m. The firm said its performance was underpinned by new contract wins with significant operators in North America, Eastern Europe and the Middle East, while tender activity has also been strong, particularly in the second half of the year, with positive traction for the company’s newly launched product portfolio.

Consequently, the company remains committed to a progressive dividend policy of no less than a 10% per annum increase up to and including the year ending November 2016. Broker Northland now anticipates FY14 adjusted pre-tax profit of £4.2m resulting in adjusted EPS of 7.9p for 2014, translating into a PE ratio of 15.6 times. For FY15 the broker anticipates respective numbers of £4.5m and 8.5p, implying a FY15 rating of 14.5 times.

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Global Economic Outlook For 2015

JAMES FAuLKNER ON THE

GLOBAL ECONOMIC OuTLOOK FOR 2015 Islamic State, Vladimir Putin, Ebola, the Eurozone Crisis... the list goes on. There are now more reasons to feel cautious than at any time since the end of the Financial Crisis. So are investors in for a bumpy ride in 2015? At the very least, it would seem that the days of expecting decent returns just for being in the market are behind us. The imminent removal of quantitative easing in the United States will see to that. However, pockets of opportunity exist for those willing to take a view on specific sectors, industries, and companies.

Despite all the talk of globalisation and convergence in world equity markets, one of the starkest observations we can make of today’s global economy is the growing divergence between certain countries and regions. A reasonably strong recovery now seems to be firmly entrenched in the US and its Anglo-Saxon cousin, the UK.

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Global Economic Outlook For 2015

“IT WOULD SEEM THAT THE DAYS OF EXPECTING DECENT RETURNS JUST FOR BEING IN THE MARKET ARE BEHIND US.”

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Global Economic Outlook For 2015

In contrast, the erstwhile dominant BRICs (with the possible exception of India) appear positively lacklustre by comparison; and the European and Japanese economies appear to be stagnating (despite the reflationary efforts of the latter). This real economic performance has fed through into the performance of equity markets, with the US powering ahead, Europe looking weak and the likes of Russia in bear market territory.

Risky World As ever, the world faces major risks and major opportunities. We begin with the risks. Geopolitical issues are looming large on the threat board, with WPP’s Sir Martin Sorrell commenting: “I cannot remember a time, certainly in the last 20 years, when there were so many geopolitical flashpoints or potential Sarajevos.” Russia’s sabre rattling is made all the more alarming given that it is accompanied by low oil prices that are threatening to destabilise the Russian economy. OPEC’s apparent willingness to accept prices as low as $40 per barrel also raises question marks for other potential problem states, especially those in the Middle East, like Iran, which rely on oil production to help balance the budget. That said, in time, a persistently lower oil price could help tame geopolitical tensions if it serves to reduce the financial resources available to such countries, including when it comes to financing terrorism.

“a persistently lower oil price could help tame geopolitical tensions.” Elsewhere, Ebola continues to spread in West Africa but remains relatively contained from a global perspective – for now at least. While China seems intent on smothering Hong Kong’s democracy movement while it’s in the cradle, a more pertinent threat could emerge should a slowing Chinese economy push the property market into retreat, potentially precipitating a debt crisis. This could pose a major threat to the Chinese ruling elite, who could be forced to use that age-old ‘get out of jail card’, foreign policy, for help. In a region that is already seeing heightened levels of military preparedness, this could prove highly destabilising. Another major ‘known unknown’ is the prospect of monetary tightening in the US and the UK. This has already played a part in recent market jitters, but there is still considerable debate as to the timing and the relative scope of future interest rate rises. With the unemployment rate now relatively low in both economies, it is looking less likely that growth can continue without stoking inflation. However, some believe that powerful deflationary forces, such as falling oil prices, could mean that central bankers have more wiggle-room than previously thought.

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Global Economic Outlook For 2015

Whatever the case may be, when monetary tightening finally does arrive, the mettle of the current bull market will no doubt be tested as ‘risk-free’ rates rise and the rest of the markets adjust accordingly. As liquidity is withdrawn in the growing economies of the US and the UK, Japan appears to be stepping up its own QE programme and it is widely hoped that Mario Draghi at the European Central Bank will finally overcome German opposition and initiate QE in the Eurozone. Whether or not this is wishful thinking, given the extent of German fears of hyperinflation, remains to be seen. In any case, it appears that the US dollar looks set for a period of continued strength as global monetary policies diverge. We wrote extensively on the implications of dollar strength in the December issue of SBM, but suffice to say that a strong dollar presents significant headwinds for many of the emerging economies, many of which are already in less than rude health.

Despite a ‘no’ vote in the Scottish referendum, political risk here in the UK seems set to rise in 2015 as the prospect of another hung parliament looks ever more likely. What’s more, the current polls suggest that the Liberal Democrats’ role as kingmakers could be significantly diminished, and the likelihood of a ‘confidence and supply’ arrangement with smaller parties such as the SNP and UKIP looks high. Such an arrangement would surely mean a less stable government for the UK. In the event that Labour leads the next government, the UK is likely to face a much more interventionist economic policy, with markets such as financial services and energy likely to come under particular scrutiny. On the other hand, should the Conservatives remain the biggest party, the prospect of an EU referendum in 2017 would presumably become a reality.

Although a future government would benefit from some pretty strong economic tailwinds such as low unemployment, low inflation and relatively strong growth, the fiscal deficit remains stubbornly high, and is matched by a similarly colossal trade deficit – despite all the talk of rebalancing towards exports and manufacturing! Any incoming government in 2015 will face choices just as tough as those the coalition faced in 2010. A key part of that rebalancing and in fostering a sustainable recovery more generally is business investment, which has remained stubbornly low despite record low interest rates in the west. According to data from Thomson Reuters, companies around the world held almost $7tn of cash and equivalents on their balance sheets at the end of 2013 – more than twice the level of 10 years ago. At the same time, capital expenditure relative to sales is at a 22-year low and some strategists believe the typical age of fixed assets and equipment has been stretched to as much as 14 years from pre-crisis norms of about nine years.

“Any incoming government in 2015 will face choices just as tough as those the coalition faced in 2010.” The trouble with interest rates is that they are sometimes akin to pushing on a string. If businesses do not believe that end demand justifies an investment, they won’t invest, regardless of the low rates on offer. Some commentators, notably including ex-US Treasury Secretary Larry Summers, have even begun to talk of ‘secular stagnation’, whereby developed economies face a prolonged period of low growth due to headwinds from the debt hangover and an ageing population. Given that economic growth relies on more workers working more productively (i.e. through population growth and improvements in technology), it would seem that higher levels of business investment are crucial in order to overcome the challenges facing the developed economies, especially in light of stagnating or even shrinking populations in some cases.

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Global Economic Outlook For 2015

The good news is that business investment in the UK surpassed its pre-crisis peak at the end of 2013 (using the new measure which takes into account R&D expenditures) and it is also rising in the US, the home of global innovation. The fruits of this investment are eventually felt more widely as better products and services help others to work more efficiently.

On the Upside So what are the big investment themes and opportunities for 2015 and beyond? The internet is often thought of as the most important invention of recent times, yet it remains in its infancy in terms of its potential impact on our lives. The next stage of the evolution of the internet will be focused on the ‘internet of things’, which includes sensors and smart nodes being incorporated into various devices to enhance connectivity between previously unlinked pieces of equipment.

According to Bank of America Merrill Lynch, this market will reach its “tipping point” in 2015, by which time the number of connected devices is expected to reach 7.2 billion – almost equivalent to the human population and a major increase from the 500 million in 2003. By 2020 the number of connected devices is tipped to pass the 50 billion mark, implying more than six connected devices for each person on the planet. However, “This will not be a replacement market,” notes BoA ML, “but rather will generate incremental revenue opportunities in areas such as big data, analytics, data/app integration, the sales cloud, marketing cloud, as well as end-to-end vertical solution providers.” Ageing populations present opportunities as well as challenges. According to the United Nations, the number of older people (aged 60 years or over) is expected to more than double from 841 million people in 2013 to more than 2 billion in 2050. This will create major long-term investment opportunities in the healthcare, insurance and leisure sectors, to name just a few examples. Meanwhile, the rise of robotics could eventually play a major role in helping to care for the elderly, as rapidly ageing countries such as Japan are hoping.

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Global Economic Outlook For 2015

In the more immediate future, robots will continue to displace human labour in a number of industries, with a report from TechNavio predicting that the global service robot market will grow at a CAGR (compound annual growth rate) of 16.5% during the period 2014-2018. Particular areas that could benefit in the short-term include industrial automation, robotic surgery and control systems. The productivity gains that can be achieved through automation are striking, with analysts estimating that Amazon’s robots save the company more than $900m each year in fulfillment efficiencies alone. While conventional terrorism remains a major global threat, the recent North Korean cyber-attack on Sony illustrates the growing threat from cyber terrorism which, along with other forms of cyber-attacks, feeds into a market estimated to grow from $95.6bn in 2014 to $155.74bn by 2019 – a CAGR (CAGR) of 10.3% – according to researcher MarketsandMarkets. The average cost of a successful attack on a US firm is $12.7m and cyber-crime is thought to cost the global economy around $500bn a year, so this area is considered a priority for investment among many corporates and governments.

“there are always pockets of activity that are buzzing away busily creating new technology to replace the old” These are but a few examples of what look set to be major growth markets of 2015 and beyond, but they serve to remind us that there are always pockets of activity that are buzzing away busily creating new technology to replace the old in the perennial cycle of Schumpeterian ‘creative destruction’. Particular sectors where cyber security investment should feature heavily are cloud service providers and verticals such as energy, oil and gas, and education, all of which are expected to adopt solutions for cyber security more readily because of growing cyber-crimes which may cause the loss of intellectual and financial assets and may jeopardise the national infrastructure and economy.

In conclusion, we leave our readers with a quote from Winston Churchill, which might help to strengthen one’s resolve ahead of what promises to be another turbulent year: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” Happy New Year!

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Andre Minassian – Something about the markets

The Greatest Bull Market in History? Andre Minassian is CEO at www.clevergamesuk.com which provides a serious alternative view of trading in the stock markets.

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Andre Minassian – Something about the markets

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Andre Minassian – Something about the markets

“My game plan is to stay long to around 2,200 on the S&P.” I will start by saying happy New Year to you all. I say happy mainly because I am very upbeat that the underlying bull market will continue right up to 2016 and possibly beyond. Rather than go into a detailed explanation of why I think this will happen, I will cut to the chase and give some numbers of which I am confident, if not certain, we will reach. In my view, this time next year we should be looking at 20,000 plus on the Dow, something I have been saying in my emails and on my website since the beginning of 2014. In the UK I believe the FTSE 100 will make progress but still lag behind the US, as it did in 2014. I have a possible 7,500 to 8,000 target for the FTSE.

Elsewhere, the DAX should make 11,000 this year, and the Nikkei 20,500. The key index to watch here is the S&P 500. My target is 2,200 plus for 2015. At around 2,200 I can see myself taking all the chips off the table and watching whether the current phase of the bull market will continue or fall some amount before it turns back up. In short, my game plan is to stay long to around 2,200 on the S&P. Caution is king when we get there, and I think we will most certainly get there. The thing is, I think we are going to build the greatest stock market bubble in history. Yup! The greatest! It’s a big call, but that is the way I see it.

S&P CHART

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Andre Minassian – Something about the markets

By the way, I don’t think the Dow will ever re-visit 17,000 again, even in any future falls. The 17,000 level is the new major and unbreakable support in my view. Away from the major indices and I am confident that interest rates will not go higher in 2015, as much as the Federal Reserve may hint or threaten they will. I feel oil prices will remain on the low side of the price range seen in 2014, due to geo-political factors more than anything else. Go long on oil if you see Vladimir Putin becoming more friendly to the West, or if he somehow leaves or is pushed out. I see the potential for a major rise in the oil price if this happens. I have found that to know when to go long oil, you need to watch Putin and his actions and not the fundamentals or the charts so much. It all sounds too easy but it really is that simple in my opinion. Answers to big questions usually are.

So on to stocks for 2015 Take your pick of the blue chips in the FTSE or Dow Jones which have a solid and consistent history of performing well. I am keen on Unilever (ULVR), WPP (WPP) and especially keen on National Grid (NG.). I have a price target of £13.60 for 2015 on the latter, which could give you a possible return of over 30%. Among the small caps I like ITM Power (ITM). See the October 2014 issue of SBM for a detailed review on this energy storage and clean fuel company from my colleague James Faulkner. I believe that ITM Power has the possibility of returning 100% to 140% on your investment in 2015, although of course it has its own risks.

ITM POWER CHART

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Andre Minassian – Something about the markets

“I believe that ITM Power has the possibility of returning 100% to 140% on your investment in 2015.” As ever, I would definitely suggest avoiding banking stocks in 2015. But also in 2016, 2017 and beyond as I do not see any future for them. Banking is becoming more and more centralised and changing forever. Watch events in Russia, specifically Putin, for going long on oil stocks, as discussed above. US stocks which I am very keen on are Google and Facebook. You might want to consider a short on McDonald’s as they have started losing business as consumers are looking for healthier and a better quality of food, even though it might cost a little more.

Always remember to have guaranteed stop losses and don’t go crazy on using margins – high margin use is what takes most traders like us out of the game. What level of margin to use is something I discuss in my regular seminars. If you wish to know about my courses or receive free email updates from myself, visit my website – details below. Have a good 2015. This is a year that I will most certainly say “fortuna favi fortus” – fortune favours the brave!

To reiterate, I am certain we are going to have a great 2015.

FOR MORE DETAILS ON ANDRE’S OFFERINGS VISIT www.clevergamesuk.com

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School Corner

school corner

OVER TRADING By Maria Psarra - Head of Trading at Prime Wealth Group

This is the fourth in a series of educational articles based on the best habits of winning traders and investors, the most common mistakes traders make, and practical ways to avoid them. Now ladies and gentlemen, Christmas is gone and a new year has begun. Hopefully one of your New Year’s resolutions is to become a better trader in 2015. Getting rid of bad habits that are holding you back is one way on the road to achieving this. Where better to start the year than with another of the most common bad habits that retail traders make? Overtrading.

In other words, it means being excessively “trigger-happy”, often buying into stocks based on emotion and without completing adequate research.

What is Overtrading? There are a number of ways of defining overtrading in the investment world. One common one, from the point of view of a broker, is the excessive buying and selling of stocks for a client in order to increase commissions. However, I will define overtrading from the point of view of a private trader: the situation occurring when financial assets are bought more often than one’s overall strategy dictates.

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School Corner

“Deriving excitement is not a valid reason for entering the markets. Looking to make money is.�

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School Corner

Overtrading in Practice Trigger-happy traders look for excitement and as such often leave their trading results to luck. In fact, they do not even think about the end result, or how they will manage their new trade, including their exit strategy, until after they have entered it. They only do one thing: buy a stock on the basis of excitement. Let me give a few typical examples of this You are sitting in front of your computer one morning just before the UK market opens. Company X has just announced annual results which are way above analyst expectations. As soon as the stock opens for trading it rises by 10% over the previous day’s close. “If only I had bought £10,000 worth yesterday,” you think. “Now I would be £1,000 in profit”. Correct, you would. But hindsight has never profited anyone. Winning traders realise this, and would have taken the risk of buying into the company’s shares on the previous day if they had expected the results to be this good. If they hadn’t already bought in, they would not jump the gun, buying at the current increased market price. If winning traders do eventually buy into the stock, they will do so at a later point (and not necessarily today) when the price has pulled back to a more attractive entry point.

Needless to say, more often than not, they are now the proud owner of a stock bought at what will turn out to be the highest price of the trading session. More experienced traders have either already bought or are waiting to buy after a pullback.

“those who overtrade hate seeing the market running away from them and other traders making money. So, in fear of missing out, they just pull the trigger and buy the stock immediately.” Now, take into account that on a busy morning, when many companies are reporting results, there will be the “opportunity” to make similar trades five or six times – buying the absolute high of stocks that have gapped higher, and also selling the absolute low of stocks that have gapped lower. This could all be in the first 10-15 minutes of the trading session. Overtraders think they can be quick, executing trades early in the day and then doing the research later. But this strategy should always be avoided. Rational thought and analysis will always beat emotion-based trading.

In contrast, those who overtrade hate seeing the market running away from them and other traders making money. So, in fear of missing out, they just pull the trigger and buy the stock immediately.

We can also add to the overtrading example those stocks which are moving quickly on the lack of any specific newsflow – both those which are rallying higher and those which are crashing lower. Also, you can include stocks which you have heard are the latest “hot tip”. The key is that those who overtrade see other traders making profits, either on the long or short side, without them being on the profit train. The fear of missing out can be a strong emotion but can result in devastating losses due to the lack of discipline.

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School Corner

“next time you feel a sudden urge to “pull the trigger” for no valid reason, just don’t do it.”

Lessons to be Learned I am sure you understand that leaving one’s success to pure luck and whims – which is exactly what traders have done in all of the aforementioned examples – does not carry a huge probability of success in any area of life. The financial markets are no different. On the contrary, trading on luck almost guarantees failure in the not so distant future. Luck does not last long in the markets.

So next time you feel a sudden urge to “pull the trigger” for no valid reason, just don’t do it. It is that simple. Emotions have no place in trading. We shall continue next time with something which is almost the opposite of overtrading – being afraid to pull the trigger. Until next month,

Each time we make a trade, we take on the inherent risk associated with it. The difference is that when we follow a proven strategy this risk is calculated and of an acceptable personal level. In this way, we protect ourselves and the value of our portfolio/ trading account. Winning traders understand this. This allows them to go through the years making consistent money from the markets. Losing traders, on the other hand, do not.

Happy Trading everyone!

Maria Psarra is Head of Trading at Prime Wealth Group (PMW), supervising a team of experienced brokers, and advising High-Net-Worth Individuals on suitable investment strategies. Maria employs different investment styles in order to construct personalised portfolios best suited to the risk and return preferences of PMW’s clients. Typical portfolios primarily comprise of UK and European Equities and Equity Indices, and to a lesser extent Commodities and Fixed Income exposure.

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Currency Corner

CURRENCY CORNER

Major Forex Moves to Watch for in 2015 By Samuel Rae

New SBM contributor, Samuel Rae, is the author of the best-selling book “Diary of a Currency Trader”. Sam’s personal trading style combines classic candlestick analysis with a simple, logical and risk management driven approach to the financial markets – a strategy that is described and demonstrated in his “Diary of a Currency Trader”. 

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Currency Corner

“as we head into 2015, i will Be emploYing much the same (Bearish) strategY in the eur/ usd.” So now is the time when we look back over the previous 12 months’ worth of trading and start to look forward to a fresh year in the markets. 2014 was an up-and-down year for a number of major economies and I think it is safe to say that the volatility we’ve experienced (induced mainly by fundamental instability across developed nations) is likely to continue as we head into 2015. So what are my expectations for the year ahead, and how will I be approaching my trading across the major currency pairs? Let’s take a look.

Euro First, let’s address the euro. We started 2014 on a relatively flat note in the EUR/USD, but uncertainty about the stability of the Eurozone quickly took hold and – from highs just shy of 1.4 – we have seen eight or nine months of straight decline. Around July 2014 I stated that we will likely see 1.2 before 1.4. A look at the euro today reaffirms this.

The Eurozone remains as unstable as ever – both economically and politically – and there is no sign that the extreme measures introduced by the European Central Bank president, Mario Draghi, earlier in the year have had any quantifiable effect on European output and expansion. I spent the year searching for bearish candlestick patterns – primarily pin bars – at regions of key resistance/support, and this strategy has served me well. As we head into 2015, I will be employing much the same (bearish) strategy in the EUR/USD. While my fundamental bias often serves simply as a discretionary tool – i.e. I’m not averse to taking trades against my bias if I feel the risk reward is right – this is one of the pairs in which I have been strongly against entering a position against my downside bias. Again, I expect this to continue as we head into the start of 2015.

EURO/USD CHART

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Currency Corner

Sterling Now, the GBP. The UK is in a strange position at the moment and its central bank is tasked with an almost impossible feat. While we are seeing strong growth in the property sector and employment is on the rise, inflation remains effectively stagnant. This means that the Bank of England cannot really raise interest rates, even though they must be raised soon in order to avoid any potential bubbles forming – one of which we are perhaps already seeing in the London real estate market.

For this reason, I will be wary about entering long Cable for at least the first few months of 2015. I expect the Bank of England to be forced into announcing a rate hike before the middle of the year. If this happens, we could see a wave of defaults across overstretched mortgage holders and a sharp contraction in consumption and retail activity. In short, while on the face of it the UK looks to be in a strong position, this is really only being propped up by newly introduced capital through quantitative easing. The UK could really be in trouble if policy support is removed.

GBP/USD CHART

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Currency Corner

Yen

uS dollar

What about the yen? Again, I am firmly bearish the yen, and have been for some time now.

So, as far as trading is concerned, does all this translate to a bullish bias in the US dollar?

Data out of Japan over the last few months has shown that it is in recession, a likely overhang of the sales tax rate hike we saw in April this year. This wouldn’t be too much of a problem if the Japanese government was in a position to stimulate the economy. It is not, however.

Initially, yes. The US dollar has strengthened versus a host of its major counterparts over the past year – and especially over the past few months – and I expect this trend to continue into the early stages of 2015.

Japan has one of the oldest and fastest ageing populations in the world. This translates into an already high – and fast increasing – social security bill that the Japanese government has to meet each month. The intention of the aforementioned sales tax rate hike was to increase government revenues in order to meet the social security requirement, but it flat lined consumption.

However, it should be noted that, now the Federal Reserve has halted its quantitative easing programme, we may see some unwinding. This would likely translate to a reallocation of capital from equity markets towards government bonds, and we may see a correction in the major US indices before the middle of next year. While initially this would likely boost the US dollar as investors move to lower risk assets, it would likely serve up some longer-term weakness.

Further, a rate hike scheduled for October next year, again designed to help the Japanese government meet its financial obligations, has now been postponed. In short, I believe that Shinzo Abe’s attempt to kickstart the Japanese economy out of its two-decade-long stagnation has failed – and that we could be witnessing the first stages of another decade of muted Japanese economic activity.

USD/JPY CHART

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Binary Corner

BINARY CORNER

Grexit: The next chapter of the euro crisis? By Dave Evans of binary.com

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Binary Corner

As Lithuanian president Prime Minister Algirdas Butkevicius withdrew a crisp new 10 euro note just after midnight on 1st January, fireworks erupted and people reportedly cheered. You have to wonder why. There is an undeniable excitement with new beginnings and few will begrudge Lithuania’s enthusiasm as they become the 19th nation to adopt the euro.

Still, with the Eurozone still lagging its principle trading partners and political uncertainty in Greece, it will be interesting to gauge the mood of the people in 18 months’ time. If the first two trading days of 2015 are anything to go by, the euro could be in for a rough ride, it dropping in value by 1.5% in just 48 hours.

EUR/ USD As Lithuania enters the euro, so Greece may be heading to an exit.

“There has been speculation that German Chancellor Angela Merkel is now more relaxed about the prospect of a Greek exit.” There has been speculation that German Chancellor Angela Merkel is now more relaxed about the prospect of a Greek exit. Such thoughts have been denied in public - they have to be after all to maintain European ‘solidarity’ – but the prospect of a ‘Grexit’ does seem to be inching closer to reality.

Greece should never have entered the euro. This much is well documented and evidenced by the country’s problems since the eruption of the euro crisis. Using complex financial arrangements and sky high projections, Greece was able to bluff its way into the euro club. The country was “gilding the lily” on a massive scale and is still now paying the price for its excesses. Except it hasn’t technically paid the full price and here we get to the heart of the argument. Greek debt has taken many ‘haircuts’ and been provided with many extensions by the Troika (ECB, IMF & EU). Incredibly, Greece is currently paying 2.4% on its debt, while Germany is paying 2.7%. Yet even with these conditions, the impact on the Greek population has been particularly hard, with a number of brutal cuts made to the social fabric.

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Binary Corner

The population wish to register their disgust at these cuts, while the creditors, especially the German financial institutions, are frustrated by the lack of progress with the required reforms. Of course the medicine is hard the creditors say, but it has to be to warrant the help being received. Seen this way, Greece is a very unhappy patient and Syriza party leader Alexis Tsipras stands on the brink of an election victory promising billions of euros of public spending. Billions of euros that Greece does not have. A euro exit would free the Greeks from tyrannical ‘Troika’, at least in the eyes of some of the population, while the creditors may be ready to turn away. At the height of the crisis, a Greek exit was completely ruled out due to the potential for a domino effect across other troubled countries, such as Ireland and Italy. Those nations are now on a much firmer footing, while the Stability Mechanism is acting as backstop.

“Everyone knows that (Greece) can never pay back its debt” He has further added that the situation in Greece resembles post WWI Germany, which was pushed too hard for repatriation by France. This hard line stance led to political extremism, a trend mirrored by the rise of Golden Dawn. Bold action must be taken by the EU and ECB, but neither of these entities have shown much talent for this. Obfuscate and survive another year seems to be the general strategy, a strategy that points to further downside for the euro in 2015. A good way to play this situation could be a LOWER trade predicting that the EUR/USD closes 2015 below 1.1500. At the time of writing this provides a potential return of 219%. Or put another way, betting that the EUR/USD will drop and close below 1.1500 on December 31st 2015 could return £31.93 for every £10 put at risk.

A Grexit would be far from painless however, with Greek debt payments ballooning when taken on by a devalued new currency. Still, the Troika may have their hands tied as the euro crisis becomes a political crisis. As the legendary George Soros warns:

Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.

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Technology Corner

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Technology Corner

TECHNOLOGY CORNER

Top Tech for 2015 SBM’s resident technology specialist, Simon Carter, takes a look at what new technological developments are set to take off this year.

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Technology Corner

It’s possible, even for the enthusiast, to get blasé and cynical about the tech world. As a general rule, the media coverage of technology and its developments is focussed on two areas: health and consumerism. And while the advancements in healthcare in the last decade are nothing short of magical, the rampant and irrepressible slew of smartphones, tablets and TVs, each only incrementally updated from its previous iteration, can make a jaded onlooker out of any of us.

“but when you do scratch beneath the surface of mass media coverage, even 2015 starts to look shiny and new.”

So what have we got coming this year? Let’s get the basics out of the way. Apple are going to release a new phone, so will Samsung, so will HTC. We’ll also see a range of new tablets, new TVs, better laptops and a wide release of Google Glass. And all of those things do have their place – indeed we’ll cover some of those in future editions of this very magazine – but what else is there? First, let’s start with something that’s not strictly new. Let’s look back at 2008 when the Large Hadron Collider was first switched on. Remember the Doomsday predictions, the worries over black holes, or even the next “Big Bang”? For four years those scientists in Switzerland have been smashing particles together without killing us all, and 2015 will be the year that the LHC hits top speed. That’s right, until now it’s only been running at half c capacity. Does this mean 2015 will see Doomsday? Almost certainly not, and bigger particle accelerators are being planned for 2028 and then 2035, when it’s hoped that we will learn even more about the birth of the universe.

If the opening to this month’s piece was a little downcast, please forgive me. See, in the course of research for this article, SBM was treated to predictions from industry experts which varied from “Apple will release a new iPad” (really?!) to “this year will be big in TV”. Maybe we’d been spoilt, but after the unrelenting optimism and deep research of Jim Mellon and Al Chalabi’s new book, Fast Forward, it was with a heavy heart that we read the “exclusive” news that HTC would be updating their flagship phone. However, in the spirit of that fantastic book, the research didn’t stop there. Of course, it’s beyond the remit of this feature to look as far into the future as Mellon and Chalabi do, but when you do scratch beneath the surface of mass media coverage, even 2015 starts to look shiny and new.

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Technology Corner

Away from the Big Bang, but still in space, 2015 will forever be known as the year the Moon sold out. That’s right, later this year Otsuka Pharmaceutical will be sending a can of soft drink – called ‘Pocari Sweat’ – off to the moon for ‘commercial purposes’. Quite who is supposed to see it is anybody’s guess, but of course the stunt will catapult Otsuka onto every news channel in the world. Still firmly in the realms of science fiction, two more developments have caught our eye, one of which is an old favourite of this feature. Yes, 2015 could finally be the year that Virtual Reality takes off.

“2015 could finally be the year that Virtual Reality takes off.”

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Technology Corner

Still firmly in the realms of science fiction, two more developments have caught our eye, one of which is an old favourite of this feature. Yes, 2015 could finally be the year that Virtual Reality takes off. Seriously, the amount of times it’s been mentioned by this columnist, Oculus should really be sending a boxful of Rift headsets over to SBM Towers any day now. Will it be big or will it be in the Look Ahead to 2016 feature in twelve months’ time? Next up is the introduction of Finger Vein Authentication technology into the UK, initially by Barclays but with other banks set to swiftly follow. Biometric scanning has long been a goal of technological security and the near-infrared LED and monochrome CCD camera sensor can read the almost impossible-to-fake finger veins of its user. The device can even tell if the finger is alive or dead. Grisly. In the early days, the technology will only be available to corporate customers, with a move to retail home banking following shortly afterwards. This could be a game changer. Finally, home entertainment and computing. This year will see the launch of Archival Disc – not a great name, but then neither was Digital Versatile Disc – which can hold six times as much data as a Blu-ray Disc (300GB compared to 50GB).

Seriously, the amount of times it’s been mentioned by this columnist, Oculus should really be sending a boxful of Rift headsets over to SBM Towers any day now. “ The disc has been developed jointly by Sony and Panasonic, avoiding the format wars seen when Blu-ray and HD DVD went head to head, and is set to be used to deliver 4K video. Meanwhile, it’s also rumoured that 2015 could see the return of the Holographic Versatile Disc which writes and reads in three dimensions and can hold up to 6TB of data. Having first been mooted in 2004, the technology has thus far been too expensive to make it viable, but with the cost/usefulness graphs set to collide sometime soon, it’s one worth keeping an eye out for. And a brief look into 2016? Space hotels, India making waves in the space race, agricultural robots and even the launch of Titanic II are all currently slated.

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Technology Corner

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Alpesh Patel On The Markets

ALPESH PATEL ON THE MARKETS WHAT DOES 2015 HAVE IN STORE FOR EUROPE AND WHY SHOULD THE UK BE CONCERNED?

No doubt 2014 was a year of great interest for the money markets worldwide, and we saw a great deal of developments in both financial and geopolitical arenas. From the tensions between Russia and ukraine, and the way the West reacted to Russia’s intentions to annex the Crimean area, to the end of the Quantitative Easing programme in the uS, the year that is now behind us was never dull.

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Alpesh Best Patel of On theThe BlogMarkets

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Alpesh Patel On The Markets

However, now that we’re in 2015 the question in everyone’s mind is what we should expect in terms of threats and opportunities coming our way. To answer such a question one should first take a look at the important themes that dominate the news and influence the way the markets are trading at the beginning of the year. After a rather eventless and quiet Christmas period, which saw most major money and stock markets trading without any excess volatility, the focus now turns on Europe - especially the viability and outlook for the Eurozone and the way it could affect the UK. What is undoubtedly the most influential piece of news is the long-held discussion on how the European Central Bank will attempt to battle the low inflation and stagnating growth in the region. ECB President Draghi has mentioned numerous times that the ECB stands ready to initiate another round of easing measures to spur the Euro area out of this recession cycle.

But how does this translate to the money markets and what opportunities might it uncover? To better understand the repercussions of such an undertaking one needs to take a look at the wider, global picture. And this picture is quite clear. The US is now done with its easing programme and is biding its time before it begins to raise interest rates. The UK, even though it still has to face its own domestic challenges, is on a similar path towards hiking its key interest rate sometime this year.

So where does this leave Europe and the single European currency? The answer is simple and yet threatening: it leaves them vulnerable. With the majority of the rest of the global economies out of their recession cycles and ready to start reaping the gains of their easing policies, Europe is left facing the difficult task of remaining competitive in the global arena. If one also takes into account the political uncertainty that the upcoming Greek elections bring to the table then the outlook for the region becomes even more clouded. And unless something changes dramatically this could only mean hard times for the Euro.

“the focus now turns on europe especiallY the viaBilitY and outlook for the eurozone and the waY it could affect the uk.” But going back to what I hinted at above, one should not overlook the potential fallout that a Greek exit from the Eurozone might bring. This comes in light of the upcoming elections, being held at the end of the month. It is true that the union is now stronger and far better insulated against such an event from the financial aspect of things, but what about the geopolitical aftermath? What will the likes of Italy and Spain have to say if they see that the Eurozone stood firm against the grim reality of Greece after years of austerity, only to end up forcing them to leave the currency union? Any political and financial union is primarily built on trust, and such trust could erode pretty fast should its members start flocking away, voluntarily or not.

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Alpesh Best Patel of On theThe BlogMarkets

“My intention is to follow the price swings on the FTSE 100 this year.” So what does the UK stand to gain or lose over these potential developments?

However, I have my doubts about it and this could mean that the domestic stock market might take a hit in the months to come if the Eurozone encounters more trouble.

The UK might not be a part of the Eurozone and we should be thankful to have an economy that can stand on its own two feet. However, the Eurozone is the UK’s primary trading partner. British banks and businesses have tremendous exposure to the European economies, so we stand to lose quite a lot. With voices now discussing whether the UK should remain part of the European Union in the years to come, this issue becomes even more important.

My intention is to follow the price swings on the FTSE 100 this year, as I believe it will be very sensitive to the geopolitical developments overseas. At the same time I have my attention fixed on the British pound. I am of the opinion that the pound will battle fiercely with the US dollar now that both economies are ready to hike their domestic interest rates so I advise that you look for reversal opportunities and play the ranges on the Cable.

It is my view that the UK has more to gain if it remains an ally of the Eurozone member states and it will be to our own benefit if the Eurozone manages to pick itself up during 2015.

Alpesh B Patel Alpesh is a hedge fund manager who set up his asset management company in 2004. His Sharescope Special Edition has outperformed every UK company’s fund manager over the past decade, as well as Warren Buffett. He has written over 200 columns for the Financial Times and presented his own investment show on Bloomberg TV for three years. He is a former Visiting Fellow in Business & Industry at Oxford University and the author of 18 books on investing. Find out more at http://www.investingbetter.com and http://www.inter.tradermind.com

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The UK Stock Market Almanac 2015

BOOK REVIEW

THE FuTuRE IS SMALL BY GERVAIS WILLIAMS A BOOK REVIEW BY ZAK MIR

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The Future Is Small by Gervais Williams

“The Future is Bright, The Future is Orange”, was used first as an advertising slogan, some years back. But could it be that The Future Is Small turns out to be the winning mantra in terms of the future in the investment / companies area. This is the view of Gervais Williams, not only a first rate fund manager but an author again via his new book. I should state that being such a positive person, and not a big reader these days (school put me off), I only tend to read books which I think I will like and only review the ones I really do like. The driver in this instance was an invite to the book launch of The Future Is Small, which is published by Harriman House – also the publishers of some of the best contemporary books on finance. I obviously could not say no, especially as it sounded like it was going to be a glamorous affair, a concept which of course fits in with the lifestyle of the Editor of Spreadbet Magazine.

This is even though many will be concerned about how we have apparently been on a slippery slope, dominated by the evils of deflation, low growth and perhaps even worse, ever lower barriers to entry, via the internet and a global market place. In such a world you can increasingly find that yesterday’s Tesco (TSCO) becomes today’s Tesco.

In fact, being surrounded by many of the great, the good and simply the richest and cleverest people in the City of London, I was overcome with the panic feeling of being the poorest person in the room. Alas, I do not yet have £1bn under management or earn £1bn a year….!

“we are due a new golden age for aim and for small companies.”

But getting back to the subject of the book, it may be worth a precis of Mr Williams’ speech to the glittering gathering. He acknowledged the notion we would all be thinking of - in the wake of such share price nosebleeds as Gulf Keystone (GKP) and London Mining (LOND) amongst many others - that the AIM market and single asset / single concept corporate hopes for the future may not always come up trumps for private investors and fund managers alike.

Indeed, we are reminded with Tesco’s demise that we are in the age of disruptive action. Arguably, it was first seen in the airlines sector from the 1990s onwards with the discounters easyJet (EZJ) and Ryanair (RYA) and continued with online retail heroes such as ASOS (ASC) and Ocado (OCDO). As we all know, and these examples underline, it is small companies who by definition are the kings of being disruptive, having the flexibility and the nimbleness to beat their “betters.”

But to write off the idea of such speculation in favour of heading towards the “blue chips” such as Unilever (ULVR) and Reckitt Benckiser (RB.) in the present environment means we are going to be facing the horrors of diminishing returns in the new world order. According to Williams this environment has been distorted by the vagaries of quantitative easing and SME’s being starved of cash by banks. Nevertheless, he thinks we are due a new golden age for AIM and for small companies.

We also have the chance in the post financial crisis environment to rewrite the concept of both what risk and reward are, especially given the low growth scenario. In particular, the idea is to appreciate that with small caps there is usually very little dependence on general economic growth for success. The upside of this is that when you are able to disconnect from hoping to be carried along by a rising tide, your investment portfolio is actually free to make the greatest gains.

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The The Future UK Stock Is Small Market by Gervais Almanac Williams 2015

“according to williams this environment has Been distorted BY the vagaries of Quantitative easing and sme’s Being starved of cash BY Banks.” I would encourage you to read The Future is Small for many reasons - remembering that the FTSE 250 has tended to outperform the FTSE 100, that small caps are under researched and suffer the greatest valuation inefficiencies, and being aware of the small company effect. The latter effect simply states that the smaller the company, generally the better the performance.

The Future Is Small by Gervais Williams is published by Harriman House and costs £14.44 in paperback (RRP £16.99) and £8.50 for the ebook (RRP £10) – CLICK HERE TO BuY

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Markets In Focus

MARKETS IN FOCuS DEC 2014

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Markets In Focus

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Thank you for reading. We wish you a profitable January!

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Spreadbetting Magazine v36