Breaking the rules

DePorre uses the shark metaphor to good effect while offering an aggressive investment strategy that debunks conventional wisdom.The advice is sound, but not practical enough to empower the ordinary investor, says Kamya Jaiswal.

Kamya Jaiswal | Print Edition: September 18, 2008

Invest like a shark
Invest like a shark

Rs 450
Pages: 208
By: James Deporre
Published By: Pearson Power

Target audience: Equity investors
Quick read tip: Don’t read the book randomly. You will be unable to grasp the strategy fully.
Language: Easy
Style: Illustrative
Visuals: Graphs, tables and charts

Till date, we have reviewed 41 books in this section, all promising to make you richer. Primers on financial planning, investing classics and bestsellers by money gurus have also made an appearance. If you have followed our reviews regularly (and hopefully read some of the books), you must have learnt a lot about money management. At the same time, a feeling of deja vu must have begun to set in and you must have started to wonder if the next book would offer something you haven’t read already.

James DePorre believes he can satisfy this craving for different advice. According to him, you haven’t learnt much about stock investing because what you have read so far is conventional wisdom which won’t get you past mediocre results. So you can’t afford to miss Invest Like a Shark, in which DePorre challenges the investing greats and shocks your investment sensibilities by turning gospels on their heads.

It begins with the story of how DePorre mastered the markets. After hearing loss ended his career as a lawyer, he started investing online in desperation. Despite having no background in finance or economy, he made stupendous gains: with a starting capital of $30,000, he earned $100,000 every year for five years.

For your investments to earn such magical returns, DePorre advises you to adopt a “shark mindset”. As the name suggests, it is an aggressive, almost predatory, attitude to hunting out the best stocks. The most important trait of a shark is to break the rules of the game. So the author’s first suggestion encourages you to do what you have been brainwashed into not doing— controlling investments.

The pundits advise not to time the market but overlook the fact that your portfolio might be “bleeding red ink”. The carrot that is dangled before you is “profit in the long term”. DePorre bulldozes this idea with his philosophy that investments should never be allowed to make losses. The readers who have invested in Tata Motors—a blue chip that lost 34% in the past year— should relate to the idea of selling before the stock loses value.

DePorre champions the cause of ordinary investors all through. He questions the efficacy of buying and holding for the long term. How long is long enough, he asks. You could suffer serious losses in the process. For instance, if an investor had bought Coca Cola shares 10 years ago and continued to sit on this “blue chip”, his returns would be worse than those from a savings account in the same period.

The shark strategy to stock investing

• ‘Buy low, sell high’ is not always true.

• Small and unknown stocks are not just for reckless investors.

• You don’t have to stay invested all the time just because you can’t time the market.

• You don’t need to focus on beating the indices.

• Everyone in the market doesn’t have access to the same information.

• Stock charts are not useless voodoo.

• You don’t have to buy only what you know.

• There is no one right way to invest.

This, however, is not to say that one should focus solely on the holding period. While trashing the “buy low, sell high” rule, DePorre gives the example of Microsoft. If an investor had bought Microsoft stocks in 1986, he would have experienced a “high” next year when the stock’s value tripled. But if he had sold it at the time, he would have missed out on the 55,500% rise in value that took place over the next 14 years.

DePorre trashes the advice of Wall Street “whales” (read, financial institutions) that fundamental analysis is superior to technical analysis. This makes ordinary investors rely on the strength of these market giants which are huge information sources. Moreover, fundamental analysis is not foolproof. DePorre reminds us of the fate of Enron. The stock was trading at $90 in August 2000 and fell to 0 in January 2002. But 10 of the 15 analysts following the stock recommended buying it till as late as November 2001.

After drubbing popular investing ideas, DePorre shocks further by suggesting ways to overcome flaws—the shark’s investing strategy. He claims that you can make profits without understanding a business or knowing how to read a balance sheet.

The premise is that “markets are not logical, they are emotional”. It’s people who move the price of stocks. And people are propelled by fear of losing money or not making enough. DePorre says the trick is to gauge what the people are thinking about a stock. Focus on what the “whales” are doing or will do, he says, and piggyback your way to success.

But how do you measure people’s sentiment? Surprise again—by using stock charts. The technique is not simple, for along with stock prices, you will have to consider indicators like the moving average of stock price and trading volume. But it is easier than what you may have read elsewhere.

Besides intelligent stock-picking, a shark must manage the portfolio well. For this, DePorre backs “selling” as an important tool. The “whales” may advocate that it is taboo to sell regularly, but DePorre claims it’s the best way to cut losses.

Though dramatically different, the shark strategy is appealing. It offers power to an ordinary investor. Plus, there are no calculus-like ratios to put you off. DePorre’s racy and lucid writing style also makes the subject less dense. His sarcasm and wit are rare for a book on finance.

The only drawback is that his strategy requires you to be constantly involved with your investments. Ordinary investors don’t have the time to track stock charts on an hourly basis, cutting into the concept’s effectiveness.

This is no reason to skip the book. As DePorre says, “Take bits and pieces of various methods and develop something comfortable for you.” Which also makes the case for us to review more books and for you to read them.
Also read our review of the book: The Basics of Investing

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