If you want to read a great book on trading/investing, Taming the Lion is a terrific option. Richard Farleigh is a famous ex-BT macro trader who is still held in awe by market participants to this day. Interestingly, current RBA Board member, Jillian Broadbendt, is one of his much admired mentors. He left BT to run a hedge fund in Bermuda in the early 1990s, and now bases himself in Monaco (and has made several appearances on the UK Times rich list). For such a sophisticated guy, his book is elegantly simple. For me, some key messages include:
-Economic cycles drive markets (I know, this sounds obvious);
-Take a thorough yet codified approach to analysing economic fundamentals, focusing on economic growth and inflation;
-Respect market prices, which are mostly efficient (ie, don't be dismissive);
-Trends are exceptionally important in financial markets (and statistically proven);
-Buy (sell) positive (negative) trends, which can be roughly identified by circa 5% moves;
-Generally, always use stops (ie, reversing hedges), and never add to losing positions;
-Add to winning positions, and don't take profits early, which is a schoolboy error;
-The consensus view is generally your friend not your enemy (ie, try to capitalise on consensus-driven trends backed by fundamentals);
-Don't buy into a falling market--wait for the price signal; and
-Markets under-react rather than over-react. What Farleigh is saying here is that big structural ideas, which he is very fond of (thinks these are the main drivers of outsized returns), can take a very long time--like many years--to be fully reflected in market prices, and broadly validated.
He pitches the book as a user manual for someone starting a hedge fund, which seems like an apt description.
