suddenly reverse. The equivalent applies for a falling market. Although trends are well known in the markets, their implications are ignored (even denied!) by mainstream thinking. For example, despite the common belief, markets tend to under-react, not overreact. Trends can be used to make money; for years I have experienced a lot of success using simple systems which use nothing but trends, and trends can help decide the best way to time investments.
There are solid reasons why trends exist and will persist in the future. Market information spreads gradually, and the reaction is delayed by inertia and scepticism. Rising prices can actually lead to more, rather than less, buying in the market. Economic cycles also help prices move in trends.
Chapter 9 – Market Timing
Even the best investment ideas can come unstuck due to bad decisions on when to buy and sell. The best technique for entering the market is to wait for a price trend to verify a bullish or bearish view. So it is not a good idea – unless there is market panic – to buy into falling markets. Being a contrarian means fighting against trends and not acknowledging that markets can go further than expected. It may work occasionally, but it is against the odds. Similarly, add to winning trades, not losing trades, and don’t be scared if you are investing alongside the consensus view. For a price to go a long way it will require consensus agreement at some point.
The decision to exit should only be made when the reasons for the investment are no longer sound, or when the price trend has reversed. Sticking with winning trades for as long as possible is the only way to make big wins.
Chapter 10 – Avoiding Temptation
I believe that really good investors can avoid temptation. They have the discipline to know when there are no genuine opportunities and not to take excessive risks. In these situations, it may be useful to keep an eye on a variety of markets and to see if any price trends develop. These may signal when something is happening which is worth investigating.
Be careful in these quiet times, because even simple wealth preservation is not straight forward due to taxes and inflation. Sophisticated retail products may appear good on the surface but require close scrutiny. With a passive portfolio, management and brokerage fees should be kept to a minimum.
A brief biography by Janine Perrett
I first met Richard in 2000 through mutual friends. He had just helped turn a rundown Georgian mansion in London into a successful private members’ club, and he was being lauded in the business pages for his support of emerging technology companies.
He was, in short, an ideal candidate for a story on my Business Sunday programme on the national Nine Network in Australia, particularly as, despite his success, he was not widely known in his homeland.
After the programme aired in May 2001, we were inundated with hundreds of letters and emails, many hailing his success, many more emotionally moved and inspired by his personal triumph over the odds.
Here is his story.
The country town of Kyabram lies 200 kilometres north-west of Melbourne in the southern Australian state of Victoria. In 1960 it had fewer than 5,000 residents but it boasted the newly opened Kyabram District Memorial Community Hospital, and it was here, on November 9th that Richard Buckland Smith was born.
His middle name was a nod to his ancestors who can trace their roots back five generations to the infamous Rum Corps rebellion. Such long links are important in such a young country where being a sixth generation Australian is something to be proud of. In fact the name was probably the only thing the troubled family had to be proud of at that moment in their history.
His father, Richard Geddes Smith, was probably just passing through Kyabram at the time of the birth, as his occupation is variously described as shearer, opal miner and seasonal labourer. His mother, the former Millicent Duggan, had already borne much, including seven other children; Richard was only the second boy. Before he was born, a baby sister had died after drinking bad water from a river close to where the family had camped.
In his brief time with his natural family Richard never knew what it was like to have a proper home, or even live in a normal house. They travelled the countryside in an old truck with all the children in the back, open to the elements. Rodney Smith, who was eight when his brother Richard was born, recalls when the weather was bad they would all sing “rain rain go away, let us live in a house one day”. A tent was carried in the truck to shelter them all when they next made camp.
Rodney does not dwell on the unpleasant aspects of their childhood except to concede he suffered a fractured skull once courtesy of his alcoholic father. There’s no doubt it was a violent childhood as Richard reluctantly recalls his very first memory was one of “fear”.
When Richard was barely two years old, all the children were taken into care by the State. The fact that so many children were taken from their parents indicates how appalling, even then, the authorities regarded their situation. Being the 1960s, the unenlightened Australian social welfare system made no attempt to keep the children together. They were all split up, never to be reunited as a family.
Probably because he was still only a baby, Richard did not have to spend too long in the home as he was soon taken into foster care by Marjorie and Keith Farleigh from Peakhurst in Sydney’s south-western suburbs.
Marjorie’s first impression of her new son was that “he was a lovely little boy”, but even though she thought he looked healthy, he soon came down with a terrible bout of measles. During the illness one of his eyes ‘turned’ and he was forced to wear a patch. Richard was confined to a darkened room with daily visits from the doctor. It would take two operations to correct the problem and by then he was five and already at school.
The Farleighs were under the impression they were only minding Richard for a few months until his parents wanted him returned. In fact Marjorie kept his bag and all his clothes packed and ready for when they sent him back. However she decided this delicate little boy needed her, so the next time the welfare officer visited, she informed him “Richard will be staying”.
Apart from one strained reunion when he was four, Richard had no contact with his natural family while growing up. While the Smiths had three other children, some of whom they simply gave away, as well as the seven who were fostered out at the same time as Richard, it was not until he was an adult that he made contact with his other siblings.
His mother died in the 1990s and he lost track of his father – in fact the last time he recalls seeing him was a chance meeting at a Sydney railway station where his itinerant father was sitting on a bench with his harmonica and swag.
While it’s clear Richard was lucky in finding a stable home with a loving foster mother and two caring foster brothers, Peter and Ian, his relationship with his foster father was never close.
Richard’s first kindergarten teachers placed him in the lowest class as they misinterpreted his chronic shyness and reluctance to speak as a sign of being backward. A turning point came in Year 5 at Peakhurst Primary school when he was about eight years old and was lucky enough to get into the class of a teacher called Jan Walker. She is still at Peakhurst, a principal these days, and recalls her first impressions of Richard as being small for his age and very shy, but even then she recognised his aptitude.
She remembers:
“He was a ghost in class and his self-esteem was not great. He was not doing well in English, but he was far ahead in mathematics and I told him - ‘you have a lot of potential.
