Introduction
W
hen I started in stock broking in London in 1982, not that long ago really, there were computers but no personal computers – and what computers there were had small screens and green letters. There was a DOS command prompt, a beady little keyboard and a separate number pad (an accessory). There was no mouse and no Windows. No email, no internet. Calculators had paper rolls and levers to pull. Big brokers like us had their own printing press and could get a piece of research from analyst to client in just three days. Apart from the research, everything else was handwritten. Messengers were a big industry. Telex machines were state-of-the-art. Filing required a stepladder. Partners smoked cigars all day, every day. One day I smoked 10 cigarettes before the market even opened. We were all hooked on an innovation – vending machine Cup-a-Soup. The really big brokers boasted about their research departments having the annual reports of all FT All Share companies going back at least 10 years, and would walk prospective clients past them when they wanted to impress. And it was impressive because to get the reports you had to write off to the companies specifically asking for them. The fact that they sent them when they weren’t obliged to made your broking firm prestigeplus as it was privileged information and only a few copies were printed. Just knowing what was in them gave us an edge on the rest of the market and, when I first arrived in broking, one of my first jobs was to use these reports to produce a radical new database of historic Price/Earnings (P/E) ratios for which our broking house became famous. We have come a long way. A heck of a long way. And in the past 10 years, let alone the past 27. All for one tremendous reason – the internet.
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The stockmarket has now taken up residency in our living rooms, and the reason it persists is because people love it. I love it. And if you’ve picked up this book there’s a good chance you do, too. But loving the stockmarket is not enough. You also need to know about it. The reason this book exists is because the demand for knowledge is insatiable, and because at the time the demand was growing exponentially and I found myself in the right place at the right time. Let me explain. From 1982 to 1998, I was an ‘institutional’ broker. I talked to fund managers for a living. The lunches were big and the numbers were bigger – in 1986 I did a billion dollars worth of turnover. For a man who wasn’t actually that interested in it at the time, my golf game became almost respectable. But it was not to last. Having arrived in Melbourne in 1994 as the souvenir of my wife Emma’s five-year visit to London, I continued in institutional broking until, three years later, the unthinkable happened. I was made redundant while working on the institutional desk of ABN AMRO, a big foreign bank with a small Australian broking arm that had just made a fortune handling the first float Telstra. Almost immediately, they were acquired by BZW. Success it seems comes at a price. A once-in-a-lifetime event I told myself and, package in the bank and young family at home, I moved on to join yet another institutional broker. Six months later it too closed its doors. I was left with another slightly smaller package and the feeling someone was trying to tell me something. The truth was that the Melbourne institutional broking industry was shrinking. It was time for a change and as luck would have it, I was invited, courted even, to do the Rich Dad, Poor Dad thing and stop building assets for someone else and start building them for myself. More specifically, to build my own client base. And so it was in 1998 that I entered ‘retail’ broking. Retail broking involves servicing the investment needs of individual private investors, or mums and dads as they are erroneously called. I went from talking to the likes of Scottish Widows, General Accident, Clydesdale Bank and National Mutual to talking to you.
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It was a huge change, and as I sat on my new retail desk with no more than a screen, a phone and my wits, I began to realise just how different it was. For the first time in my adult life I had no salary. I looked over the abyss every day. No security blanket. No certainty. Don’t deal, don’t eat. I was no longer part of a machine. I was left to fend for myself, to set my own service standards and come up with my own ideas, all working on commission. There was no marching in step, no formula for success. It was dog eat dog, do your best with what you’ve got and good luck. It was freedom – and it was fantastic. I set about building myself a client base, an asset, and with some wonderful mentoring, some even better stock advice, the willingness of my first client – a brother-in-law with $10,000 which at one point turned into $70,000 – and an impending Tech Boom, I have never looked back.
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But as I made this transition from professional institutional dealer to private client adviser, the one thing that stuck out was just how little anybody knew about the industry – about how the institutional world worked, how the stockmarket machine went around. The traps. The tricks. The dangers and the opportunities. Yet here we were with Telstra dumping first-time investors into the game, with online trading via CommSEc and E*Trade making the stockmarket gloriously available and with the proliferation of Self-Managed Super Funds. The attitude was that it was all a big, fun, easy game and that participation alone guaranteed success. At least that’s how it was marketed. But no-one is Warren Buffett and scores of investors were chewing up their futures pretending they were. So, one day in 1998, I decided to fill the gap. I collected the email addresses of my few valuable clients – my assets – into one Microsoft Outlook distribution list and whipped off a morning email to them about the stockmarket. About what was going on and what we could invest in. The subject line read ‘FROM MARCUS TODAY’ and in that email the Marcus Today daily stockmarket newsletter business, which has been my shadow for the past 11 years, was born. As the email developed, a new technology appeared. Hyperlinks. Being able to click on links and email someone was pretty flash at the time and keen to use them I decided to advertise for ‘stupid questions’. Hit this link and ask me what you like. There are no stupid questions in this industry and there is a lot of assumed knowledge, but the results of my experiment were astonishing – I was staggered by what people did not know. Here we were with Telstra, the Tech Boom, the online broking revolution and the trend towards ‘taking control’ causing an explosion in the number of people taking responsibility for their own and their family’s financial destiny. Some people were risking tens if not hundreds of thousands of dollars, and here I was fielding questions about what an ex-dividend meant, what T+3 was and what a renounceable rights issue entitled you to do. Most of us don’t know anything about dentistry or surgery, so we take ourselves off to a dentist or a surgeon. But with the stockmarket, we launch straight in the deep end. We don’t stop to think if we should, simply because we can. The stockmarket is too attractive. We want to take control –
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we want to invest and trade, we want to do it ourselves and we want to believe we can be Warren Buffett. It’s like sprinting into a minefield. And so I found my niche. Telling people where the mines were and what to look out for. What was really going on in the market and in the industry, where to step and where not to step, the pitfalls and the opportunities. Marcus Today became a conduit for subscribers and clients to ‘ask’. To share their issues, questions and knowledge to the benefit of the whole membership base and without judgement. And the Marcus Today mission statement was born – to inform, explain, educate and entertain (if you can call dry cynicism entertaining). Within a year of my first Marcus Today email, I had hundreds of names on the list and, when the Tech Boom hit in early 2000, it burst into the thousands and started to get out of hand. If I included a chart with a stock idea, or a picture with an article, the servers at work would grind to a halt. It was time to turn the daily email into a business and I started charging a modest subscription fee to anyone who wasn’t a client. It’s a scary thing to sell your first subscription. In hindsight, I should have framed that first $250 cheque because it represented a huge commitment, to write a daily newsletter about the stockmarket for the next 12 months – initially, for just one subscriber. I wisely opened a separate bank account to sit the money in, just in case it was the only cheque I got; I could always refund him the money. I shouldn’t have worried. Within a month, the Marcus Today newsletter was back in the hundreds. My new website took credit cards. I remember complaining about paying $1,200 to have it built – the next website cost $20,000. The one after that was $60,000, and as anyone with a publishing website will tell you, it’s a constant work in progress. Then, in 2002, I was invited to write for The Sunday Age. ‘The Lookout Column’ we called it. I was ‘looking out’ for things coming up in the week ahead. When the paper changed editors, my column was picked up by the Business section of Saturday’s Age. The new editor was a little bit off the wall. I had no brief. I could write about anything I could get past him. He gave me a blank canvas and the game began. In five years, he turned down only one column and in hindsight, I would have turned it down, too.
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I started writing about anything I thought necessary, interesting and relevant, and this book is the distillation of it all. From straight advice, like the truth about IPOs and the financial products that call themselves ‘capital guaranteed’, to the only guaranteed ways to get rich and the right and wrong reasons to invest and trade. About what not to do, like taking control just because you can. About gambling. About popular delusions like buying defensive stocks. I wrote about issues like understanding debt. Understanding the industry and how we sell happiness and certainty. How it won’t necessarily be okay in the end. The real cost of doing your own investment. How to plan, how to trade, how to take a loss, how to avoid the traps. What to do in a bear market. The people who succeed. Those who don’t. Why most people can’t make money. How the guy who said, “If you never sell, you haven’t made a loss” is an idiot, and why thinking you can be a gun trader between packing the kids off to school and working a full-time job is a joke. In a nutshell, it’s about the journey. And life’s few truths, like putting family first and valuing your time, the pressure on parents, and how preparing for marriage and playing the stockmarket are not so dissimilar. And then there are my own experiences. Like having a mortal moment. Seizing the day and being in business, and the characters. Lulu’s lucky shorts, The Genius, The life of Brian, the Alfa Male, Skelly and Yogi Bear. Not to mention my beautiful wife and kids, the brothers-in-law, my extended family and, especially, my dad. All of whom have rated regular mentions, without complaint. What went into this book took six years of writing and 47 years of living. I hope it will keep you on the straight and narrow, inform you, explain things to you and, above all, entertain you. If so, mission accomplished. Marcus Padley
September 2009
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