November 19, 2010 4:21 pm

Learning to trade at school of hard knocks

To describe selling educational courses in investing as akin to “selling snake oil” is pretty strong stuff – particularly if you are about to launch your own ­internet-based trading ­academy. But Lex Van Dam – a former Goldman Sachs trader turned hedge fund manager – is not one to mince his words when it comes to damning his peers.

“There is so much bogus education going on in the world of finance and investing,” he says.

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“People pay thousands for courses that are totally useless. Education in finance is similar to selling snake oil. I am embarrassed by some of the methods people use to sell their ‘know-how’ to the unsuspecting public.”

Of course, Van Dam – who is aiming to charge people an upfront fee of £249 to use his online ­material, with the offer of follow-up seminars for those willing and able to stay the course – is himself hoping to profit from the public’s appetite for ‘teach me how to get rich quick’ courses.

But two things differentiate him from those he ­disparages.

First, as creator of BBC2’s Million Dollar Traders, he has really put his own money where his mouth is. In the programme, which aired last year, he allowed eight novice traders to ­gamble with £500,000 of his own money for eight weeks – having had just two weeks of training.

In spite of a period of extreme stock market turbulence, these novices ­managed to claw back their positions and lost only 2 per cent of the capital at stake.

“That does not sound great, but it was much ­better than the professionals who, over the same period, lost more than 4 per cent,” notes Van Dam. “I think it was pretty amazing that a group of inexperienced people with only minimal training were able to outperform the experts.”

Second, he does not ­promise success. “I am not arguing I can make people make a fortune,” he says. “But if you are able to appreciate and stick to a few basic rules, you can be in the game and stay in the game for longer.”

To be cut out for trading – whether professionally or on their own behalf – people do need to tick a few basic boxes, Van Dam argues.

He suggests that a ­beginner needs to be able
to do basic research on a company’s profitability, have a grasp of stock valuation and an appreciation of charting techniques – all of which can be developed quickly by some. He also encourages a healthy scepticism of expert opinion and confidence in your own trading ideas.

However, Van Dam, who was born in the Netherlands, believes it is equally important for students to develop the right kind of “Dutch courage”.

“It is easy to get greedy when it goes well and panic when things go wrong,” he says. But, he says, investors need to “deal with the pain” and improve their mental toughness. “Good traders run their profits and cut their losses” he adds – while most people are doing the opposite.

Van Dam, who spent a decade trading with Goldman Sachs, followed by a spell with hedge fund GLG Partners, now runs $500m-worth of funds invested largely by private families with Hampstead Capital, based in Covent Garden, London, which he runs with four other partners.

But, even though he acts as one himself, he still advocates cutting out the expert “middleman”.

“The track record of many who seek to mystify direct investing and trading is poor,” he argues. “The UK stock market has done nothing for 10 years. Yet those in the City pay ­themselves record bonuses. Where do you think that money is coming from?

“The City invents more and more complicated ­products. They don’t even understand them themselves. The government does not understand them, either. The one certainty is that you will not get the pension you expected.”

Still, Van Dam accepts that the School of Hard Knocks can be as ­instructive as his new online academy.

“Beginners are often lucky in trading, which is a real shame. If they had lost more money initially they might have acquired the necessary market wisdom quicker!”

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