Matt McLoughlin

Liontrust’s traders go Christmas shopping

Matt McLoughlin

Liontrust Traders go Christmas Shopping


With the season very much upon us, Liontrust’s Head of Trading Matt McLoughlin outlines what Christmas shopping and the day job have in common.

 

There are three things we look at when we go Christmas shopping, which are exactly the same three things that we look for when buying stocks or bonds for our portfolios.

 

Price

Just like all of our clients, we always look for the best possible price when we go Christmas shopping, which is exactly what we do when buying equities and bonds for our portfolios. We shop around discretely, never quite telling the sellers what we are after until we have found the perfect gift at the best price.  After we have checked every possible source, we then quickly buy it before anybody else can beat us to it. We sleep easy in our beds on Christmas Eve knowing that we have got the lowest price on the market and done the best job possible.

 

Gift Availability

Gift availability, or “liquidity” as we call it, will tell us whether what we are looking to buy is actually available on the market or not.  If it is available, then there might only be a small number for sale, so we have to be very clever to find it.  We need to know exactly where to shop and when.  As much as we may have a great idea for a gift, without being able to source it, the idea becomes worthless, so finding liquidity is extremely important to us.  The exact same is true when we trade for our portfolios, so we always work very hard to find the exact securities that we want from carefully selected reputable sources.

 

Information Leakage

On a Christmas shopping expedition, the last thing we would do is to tell a shop keeper how many of each gift we have to buy in advance, because they could easily just hike their prices just before I enter the shop, leaving us to pay higher prices.  If they knew I wanted to buy three children’s bicycles at £100 each before I walked into the store, they could quickly mark them as £120 each and I would be forced to pay the new, higher price.  If I was more discreet and they did not know of this demand, then I could just buy three bicycles at £100 each and put the £60 I have saved towards the turkey.

 

This is the same as when we start buying a stock or a bond.  Other market participants can sometimes see what trades have taken place and try to guess what more we have left to do.  They could then try to buy the same stock or bond before us and attempt to sell it back to us at a higher price.  To stop this, we are very careful not to give away any information to either traditional brokers, unless we have a very long term relationship with them, or increasingly to High Frequency Trading firms (HFTs). We reduce our information leakage, which protects us from market predators.

 

Christmas Day

When we have done a good job on all three factors, we can enjoy a glass of champagne on Christmas morning in the knowledge that the family will be happy with their gifts, the bank balance is still in good order and the turkey will be as dry as last year.

 

Merry Christmas!

For a comprehensive list of common financial words and terms, see our glossary here.

 

Key Risks & Disclaimer

Please remember that past performance is not a guide to future performance and the value of an investment and any income generated from them can fall as well as rise and is not guaranteed, therefore you may not get back the amount originally invested and potentially risk total loss of capital.

This Blog should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust.

Thursday, December 6, 2018, 9:33 AM