george grombacher 0:02
Adrian to get us started give us two truths and a lie. Two Truths

Adrian Reid 0:06
and a Lie. All righty. My favorite band is Metallica. Every night before I go to bed, I have a clean desk policy so I can start the day fresh with a clear mind and a clear desk the next morning, and I haven’t read a newspaper for 15 years.

george grombacher 0:24
Those are excellent. Oh my goodness, Metallica, a clean desk and no newspapers. I think that the lie is the clean desk. No, come on. Did I get it? So

Adrian Reid 0:43
clean? Looks good. So perfect. That’s why we do zoom so that you can see the other things. Okay.

george grombacher 0:51
Yeah. So I was looking around there, we’ve got a very, very clean shelf behind you. But turns out turns out what I can’t see as a disaster.

Adrian Reid 1:01
Disaster is a bit of an exaggeration just now is probably a fair few post it notes stuck around stuck around the desk. So Okay, fair enough. Fair enough. Yeah, but you don’t get to see that’s, that’s private, right.

george grombacher 1:12
I get it. I’m interested in a camera behind you as you are rocking out. Enter Sandman and not reading newspapers and just kind of go on about your day.

Adrian Reid 1:22
So I love him. So let’s do it. Well, I’m

george grombacher 1:26
excited to have you on the show. Tell us what’s top of mind for you right now.

Adrian Reid 1:31
So right now I’m thinking about, at least in my trading work, I’m spending a lot of time thinking about developing new systems for a range of different ETFs exchange traded funds. Which is kind of cool, because most of my trading strategies are stock based, like broad base, you know, hold a bunch of stocks in a strategy according to a set of rules. And this is something different, which is a nice diversify. So that’s really what I’m working on at the moment.

george grombacher 1:57
Nice. What’s the motivation there?

Adrian Reid 2:01
Look, it’s about getting different return streams or diversification into the portfolio, and helping others to do that as well. I’ve got strategies that I trade my students in, in enlightened stock trading also traded them. And the more different ways we have of making money, the better our portfolios can perform. So I’m really looking for, you know, trading strategies were that that Zig when other my other strategies zag, if that makes sense. I’m just you know, when when something’s going up, you want to make money when something’s going down, you want to make money, and the more different ways you can make money, the smoother the portfolio can be overall.

george grombacher 2:40
Yeah, well, it certainly makes sense intellectually, the practice of it, though, I suppose we’ll find out. But you’re not concerned about fracturing attention?

Adrian Reid 2:52
Oh, good question. Yeah. As in if you put two rabbits, you know, basket, this doing many different things. Yes.

george grombacher 3:00
Yeah. Yeah, I

Adrian Reid 3:02
think it’s a, I think it’s a valid, a really valid point. And I’ve been through a few cycles like this in my trading journey. Fractured attention is a problem if it leads to mistakes. And if you have processes to make your decisions and execute your, your trading, investing decisions that avoid those mistakes, then I don’t believe it’s an issue. One of the reasons why I like a diversified approach, as opposed to a highly concentrated, extremely focused approach is that each individual decision doesn’t matter as much. Now, that doesn’t mean you don’t take as much care on each individual decision. But it means that there’s not as much kind of catastrophic risk on each individual decision. And so it’s easier to make, it’s easier to pull the trigger. Because you’re only using a tiny amount of money for each transaction, if that makes sense.

george grombacher 3:57
Makes a ton of sense. I am a huge proponent of people taking a very boring, sort of diversified approach to the vast majority of their investing. And I sort of think about that as giving yourself permission to then go and take more concentrated bigger swings at riskier, more speculative things. I don’t know if that makes sense.

Adrian Reid 4:19
Yeah, I mean, I, my approach would be I take many swings at many different things. So I have some very stable long term strategies where you know, you’re in and out, maybe over months, or many months even. I have some short term strategies, which are in and out much more quickly, and they’re taking a lot more kind of hits to try and catch the winners. And I also have some quite volatile stuff. So I trade stocks and crypto for example. So I have some crypto strategies, and they trade fairly regularly, trying to grab those really big sort of exponential winners that you see in the crypto market. Yeah, I love it.

george grombacher 5:03
I was, I was researching a little bit, and I found some pew research that was talking about how, roughly speaking, think only 46% of Americans own stocks, bonds, some kind of investments, and only 7% are really active traders, so that are consistently buying and selling those numbers sound right to you. Yeah,

Adrian Reid 5:26
I mean, the 47% probably surprises me a little, but it feels about right. I mean, if you think about the proportion of people that really don’t have a sense of financial independence, or you know, sort of working or living day to day, paycheck to paycheck, then it’s kind of hard to invest in that situation. So maybe it’s right, the 7% would certainly be right, my experience is that the vast majority of people who own stocks, don’t really do anything active with it. It’s like all buy and hold and, you know, it’ll grow one day. What’s interesting is of the 7% How many of those can actually do it profitably? And consistently? That’s a more frightening number.

george grombacher 6:18
You think it’s pretty low? Oh, it’s

Adrian Reid 6:20
pretty low. Yeah, unfortunately. And, and the reality is, most people who are actively trading don’t have an edge. And so essentially, they’re, they’re gambling, it’s like buying little like buying lottery tickets. So you see a lot of people talking about, oh, look at my big winner I made I bought this stock and went from here to there. And that’s great. But they don’t talk about the losses. And you know, that’s human nature, that’s fine. But I think the reality is most most people you see in chat internet forums about trading, and most people you see online aren’t doing it consistently, and probably long term won’t survive.

george grombacher 7:01
That makes sense to me. We here in the United States have fallen in love with and what is the right term? whatever the term is, online, gambling has become legal. And every advertiser, every advertisement on TV in the internet seems to be from one of the top five or so, online gambling places. And from my understanding there, if you are a professional gambler, who’s amazingly organized and does it professionally, you win around 53% of the time. So unless you have that edge, which is really, really uncommon, even in professional gambling, you’re going to lose money. So I appreciate what you just said, you need an edge, you need systems and processes. So do they allow online gambling in Australia?

Adrian Reid 7:52
I suspect so, to be honest, I’ve never Googled for online gambling, it hasn’t really come into my, my world. So I’m gonna say I’m gonna say Yeah, probably. But I don’t actually know what’s interesting. And I’m glad you brought up online gambling, though, because if you look at the online gambling sites, and you look at a lot of the stock trading apps, or the crypto trading apps that people use that kind of similar. And that’s, that’s concerning, right? Because the apps that for investing or trading, it’s trading, not investing, but pushing that sort of thinking. And they do that, because that’s how they generate their income because they get paid per transaction. And so they want you to be like, Oh, this, oh, this oh, this, you know, they want you to be buying and selling kind of on the spur of the moment. And that’s not the way to long term success. It’s not the way to have an edge and stay in the game.

george grombacher 8:54
So let’s talk about finding that edge. Yeah, absolutely.

Adrian Reid 8:59
So I think the first thing is you need to succeed, you need rules that will get you in and get you out of the market with a positive expectation A, if you repeat those rules many, many times, on average per dollar that you risk, you should come out ahead. Now, most people think that in order to do that you need to be right, more often. Like if I could just be right 60% of the time, then I could make money. If I could be right 70% of the time, I could make money. But actually, what that’s not what matters. What matters is when you’re right. How much do you make, and when you’re wrong, how much do you lose? And so there’s a equation in trading we call it the expectancy equation, which is the percentage of winners times the average win minus the percentage of losers times the average loss. And that has to be a positive number. The easiest way to make that positive number and give yourself a fighting chance of winning long term is to have big wins and small losses. And if you have a big win, you don’t need very many of them. You can be right 30% of the time and still make a ton of money because the winds are huge and the losses are small.

george grombacher 10:23
That makes sense. It does. Yeah. It certainly makes sense that I would want to have big wins and small losses. Yeah. So sounds good. Sounds easy, does hard kind of a thing, or it is easy with the right structure system.

Adrian Reid 10:37
Look, it’s simple. But not easy is a better way to it is a good way to describe it simple. Because essentially what you want is an an asset, a stock ticker, a token, crypto token, whatever you want, one of them is going up. And you want to buy it and hold it as long as it keeps going up. And if it stops going up and starts going down, then you want to sell it because you’re not, it’s not growing anymore. What most people do is look for a bargain, oh, this is way cheaper than it was, I better buy it. So when it goes back to where it was. I can make money. But there’s a floor and the thinking because the floor and the floor floor. And the thinking is when it goes back to where it was. That’s the floor because it doesn’t always momentum tends to persist in the market. In general. And so if you buy something as falling, there’s a good chance of falling for a reason. It might keep falling. And I keep falling. If it keeps falling. What do you get? Large loser. And large losers are very hard to overcome. Yeah, so we want lots of we want small losers, so that when we have a winning trade, it’s easy to overcome the losses that we’ve had, if we have big losses, you have to have lots of big wins to recover and get back to where your account was. So it’s kind of hard.

george grombacher 12:03
And in theory, it’s harder to take a big loss when you are buying something that is on the way up. And when he noticed that it stops going up. That’s when you cut bait and sell.

Adrian Reid 12:17
Yeah, I guess yes, I think that’s true. Big losses can still happen if you’re not careful. And the way to avoid it. And this is probably one of the biggest tricks to long term profitability is you’ve got to have an exit point that you get out. No matter what doesn’t matter how much you love the stock, doesn’t matter how much you love the story, doesn’t matter what the media is saying, or the broker saying or anything like that, if you’re in a position that’s going against you, you’ve got to have a point at which you say, I’ve got to get out to protect my capital. So if you buy, something’s going up, and it immediately starts going down, you have to have a failsafe exit point. Now that doesn’t need to be super close to your entry price. Like let’s say you bought at $10 a share. If the share was a little bit volatile and moved around a couple of bucks, you know, maybe it might have your exit point at seven. And you can determine that on a chart or by all sorts of technical rules we don’t need to get into. But the key thing is you’ve got to have an exit point that you say I’m wrong, I’ve got to get out to protect my capital. And keep those losses relatively small. Because that way you can recover the losses easy. What happens, I mean, the way to think about this is if I have $100 in my account, and I lose $50. Now I’ve got $50 in my account, I have to make 100% on that $50 To get back to where it was, which is hard. Making 100% is hard. If I have $100 in my account, and I lose $10. Now I’m at 90, I only have to make 11% to get back to where I was, which is easier, much easier. So what we do is you want to you want to keep your losses small, and make sure that your account doesn’t dip too much so that you can recover. I think that mistake most people make is they go for the big swings. They take big Gamble’s they take big leverage, and they find their account goes from 100 down to 5040 30. Because they took a big risk and it didn’t pay off, then it’s very hard to recover. So you end up blowing up your account and you have to start again. And that’s bad for all sorts of reasons.

george grombacher 14:24
Bad bad for lots of reasons, in terms of a stock in terms of a cryptocurrency in terms of an ETF and I know that you mentioned that you are developing a new system strategy process for for investing or trading ETFs how similar are these? How relevant is the actual thing itself?

Adrian Reid 14:47
Yeah, good question. Someone irrelevant, I would say but not not as much as you might think. There are some generic strategies that tend to work. Now they need to be fine tuned to be In the on the market. So for example, I might have a strategy that works on Australian stocks. And that should work moderately well on US stocks, but there’s some character differences between the way those markets move. So you might need to adjust it or fine tune it a little bit. But generically, the strategies, you know, are often the same. So the general strategy generic strategies that tend to work trend following trend following is you buy something is going up, and you hold it until it’s very obviously no longer going up and starts going down, then you sell it. The goal of that strategy is to take a big chunk out of the middle of a long term trend and make some money. That could be an uptrend, or it could be a downtrend doesn’t matter, you can do it either way. The second generic strategy that tends to work is mean reversion. So mean reversion is in an uptrend, when when a ticker is moving up, if it takes a little dip, suddenly, it’ll tend to bounce back in the direction of the trend, or in a downtrend, if it has a little rally, it’ll tend to dip, it’ll tend to fall back towards the main trend. And you can, you can buy the dip in an uptrend expecting a rally and makes make money pretty quickly. It’s a small amount of money, but you can make money pretty quickly. And you can do the same in a downtrend says mean reversion. Now the strategy that tends to work is rotational momentum. So or relative momentum, that’s where you buy, let’s say you buy the 10 strongest stocks, and then hold them for a month. And then at the end of the month, you look for, which are the 10 strongest stocks. Now if those 10 are still attend strongest, you keep holding them. If they’re not the 10, strongest, you sell them and you buy the 10 stronger. So you’re basically always rotating into strength that works in a lot of markets. And then the last one is a seasonal patterns. So things tend to happen in repeatable ways. There’s certain days of the week where patterns happen, there’s certain times of the year when patterns happen. Before holidays thing, the market tends to rally at month end at the end of the month, but the market tends to rally, those sorts of things are tradable as well. So those strategies tend to work regardless of the ticker, but you just have to fine tune the exact rules, depending on which market it is.

george grombacher 17:15
Once you figure out a strategy, several strategies, do you need to get out of your own way and stop tinkering and stop trying to perfect? Or is it possible to just keep perfecting and optimizing?

Adrian Reid 17:30
You absolutely need to get out of the way. Yeah, it’s actually really important because that idea of perfecting the strategy is is really false. We don’t need perfect strategies. And in fact, trying to get the perfect strategy that doesn’t have losses or has a laser sharp kind of equity curve. That’s destructive. Because the markets are volatile, you know, returns don’t come in a straight line. And the more you try and tinker with your strategy, to make the returns come in a straight line, the more you roll in the strategy. Because there’s going to be losses, we have to accept that as part of our trading like it’s unavoidable. And any strategy that claims to have no losses, has a hidden tail risk that they’re not telling you about. Because there are always always losses. But if you have that expectancy equation we talked about earlier, right, and you’ve got a good strategy. The the strategy should make money gradually over time, it’s gonna go up and down. But it will recover from the dips.

george grombacher 18:36
And once I make a decision that I’m going to follow trends, I’m going to focus on seasonal patterns. Do you do you pick? Do you pick one do you pick two? Do you pick three? And then do I am I able to automate these? How and how often am I actually touching it?

Adrian Reid 18:57
Let’s start with automation first, because a lot of people come into the market go Oh, yeah, I want to automate a bot to do my trading to make me rich. And then I can just sit back on the beach drink pina coladas. Great and, and yeah, like just cash rolls in. It can’t be automated, my trading is fully automated. But it doesn’t mean you don’t have to watch it and manage it. Because things can go wrong. And there’s often edge cases where you need to actually intervene or think and strategies don’t last forever. So you need to actually monitor the performance of the strategy. Because if it starts to decay over time, then you want to make the decision to adjust it or turn it off. So I think the automation is, is definitely possible. The reason I like automation, once you get to that point is it unlocks a level of diversification that you can’t really do manually. So for example, I trade quite a few strategies over Australian stocks, US stocks, Hong Kong stocks and Canadian stocks, and three different crypto exchanges. And so there’s lots of trades going on. And you would have to have a huge amount of time and massive attention to detail to do all that manually, and not make mistakes, not miss things. But the automation does, it sort of manages all of that. So then back to your question, originally of, do I just choose one of those strategies and go with it? At the beginning, yes. Because you’re going to probably start off by placing the trades manually, and monitoring them manually. And, and you start simple. And make sure that you’ve got the process working and you’re not making mistakes, then you can layer on another strategy, and make sure you’ve got that one working smoothly, then you can layer on another strategy, make sure you’ve got that one working smoothly, then eventually it gets to the point where if you’re still trading manually, you don’t want to add another strategy. Because it would cause mistakes. At that point. For me, that’s when I automated. So I think you want ultimately I would want multiple strategies, because not all, no strategy makes money all the time. And so you want several different strategies that make money from the markets at different times. And then when you land them into a portfolio, you tend to make better returns with lower risk. Hello.

george grombacher 21:19
Well, Adrian, we’re ready for that difference making tip, what do you have for us?

Adrian Reid 21:26
Most people aren’t. Yeah, most people hold on hoping for something to recover. It’s like, oh, this stock when it gives me I’ll just hold it long term until it gets back to even so I can get out. That’s flawed thinking. And it’s flawed thinking, because while you’re holding that thing that hasn’t recovered, It’s eroding your wealth. And it’s probably continuing to fall. So I don’t like to hold things that are going against me a little bit sure, as long as it’s within the rules of the strategy. But when you get an exit signal, you’ve got to get out. It’s okay to take a loss. It’s not okay to get a little lost get bigger and bigger and bigger, hoping for it to recover. Because it wastes huge amounts of time. It erodes your wealth. And long term, your accounts can be possible as a result, to take the loss early, except you’re wrong. And move on. Don’t let it get bigger and bigger and then hold and hope that maybe it recovers one day.

george grombacher 22:31
Well, I think that is great stuff that definitely gets cut off. Yeah, Andrew, thank you so much for coming on. Where can people learn more about you? This

Adrian Reid 22:40
place is my website, enlightened stock trading.com heaps and heaps of materials on there about systematic trading for both stocks and crypto, and risk management and so on. So if you’re interested in trading, not gambling. I think that’s the place to go. Excellent. Well,

george grombacher 23:00
it’s great to see you again. I appreciate you coming back on. Finally friendly reminder that there’s never going to be anybody more interested in your financial success than you so act accordingly.