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Taming the Lion - Richard Farleigh

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yonnie

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here is a home grown boy from down under living in Monacau with hundreds of millions of dollars earned trading the trend/fundamentals.

I wonder why so few people are doing what he is doing.
are we bored out of our brains and need excitement every day and push those buttons?
look at me - 600 trades last year - profit around $ 135,000 in 9 months - but what about next year - and the year after - and..............

what Farleigh does is looking at the markets world wide, be it property, ASX, commodities, currencies, bond and parking his money there when he sees a trend forming and the fundamentals are in agreement.

we are into micro stuff - will BHP go up today or down, what will sugar do next week.

not him - he might buy futures on the SPI in 2003 and ride them all the way to 2007 - no worries.

if you had placed $ 100,000 of your own money in the SPI futures in 2003, how many millions would you have today?

in the mean time you`ll be checking the markets for a couple of minutes before boarding that cruise ship:)

are we short sighted or what or am I the only one:banghead:
 
I read this book about 12 months ago and hold it in my top 5 best reads on investing. I'm doing the same yonnie, trading furiously but knowing that less time and effort could get me a better return following Farleighs insights. The dilemma is picking the trend and committing a far chunk to it!. In the book, he states that "property" is one of the easiest trends to pick with plenty of time to enter. My preferred way of capitalising on that would be through property shares. Congrats on your profits too yonnie!!
 
thanks moxy, I`m doing alright now but what when the music stops? at the moment I have nothing to replace it.

to follow Richard is a whole new learning experience for me and I think we would have to be organised first........
get the different markets on your computer with the corresponding prices, charts etc.

subscribe to weekly/monthly business paper with macro-economic world news or bloomberg etc to learn about the fundamentals of the different markets

invest 1/3 of your capital in a big market and 1/6 of that capital for smaller markets.

btw property shares in OZ are too much influenced by the state of the share market, but I wouldnt know how to get a clean play on the property market here or abroad.
also dont think of only OZ property.

1. stock markets: keep an eye on the different stock markets that you are able to invest in. A lot of country etf`s are trading on the US market like Asian, European and American countries. unfortunately etf`s dont have gearing. other stock markets might have futures trading that index.

2. commodities: better to invest in a commodity index, because the separate commodities are too volatile

3. bonds: which one(s) to watch?

4. global property: which one(s) to watch?

5. currencies: major pairs like euro/us, us/yen etc

any more ideas?:)
 
I see there are no "sophisticated" traders here, only button pushers:cool:

anybody here that can look beyond ASX shares, sugar futures, but attempts to have a look at different global markets long-term?
 
I've read the book and I enjoyed it. Yes, it's inspiring. Yes, he's a clever man. Yes, he is an Aussie which makes the tone of the book agreeable. There is a humilty in the way most of us write/think/speak that you don't get as often in yank books.

Alas he also has his biases and and he has also made his collosal mistakes which resulted in big losses. Presumably these occured after he'd already amased a sustainable fortune as it seems he still lives in Monaco. Probably the best thing I took from the book is the way he creates an economic check-list to come to some objective and metricised conclusion about whether a particular type of investment is economically a good bet right now.

What I didn't like was that he refers to all chartists as astrologers, or some such, yet he himself makes reference to waiting for the trend to commence. I can't think of a better tool to validate this than a damn chart. I think what he meant to allude to was the Elliott Wavers, Gann Analysists, Cycles Analysts etc. are the astrologers. A version of informedTrend Following is what he does, IMO.

I wrote a piece that make a lot of reference to the book in my blog:

http://theasxgorilla.blogspot.com/2007/03/so-whos-right.html

ASX.G
 
Ofcourse he made mistakes along the way. I dont hold that against him because you cant become an expert overnight. As a matter of fact I would get really suspicious if he claimed he never made any.
I know I made plenty in my time.

Like he said: even the best ideas can go wrong in circumstances you have no control over.
Let alone if you deviate from your strategy he admitted doing sometimes.

To see that the price in a market went up 5-10% you dont need a chart for that and realising that a trend has formed.
But I reckon he would look at a chart sometimes as well and like you said he probably didn`t like all the hocus pocus.

But I sure like the global macro-economic look, instead of focussing on individual shares on the ASX. That is too limited in my view and I dont want to hold shares while that market is flat for years.

Have you been branching out to other areas like currencies, commodities, property, bond etc. and keeping an eye out for trends?

You lucky thing, summer in Sweden now and I got the heater going:(
 
I remember reading somewhere that you trade the European markets and that the volume of info is a bit overwhelming sometimes.

Is that not more reason to make a transition and focus on the big markets (not individual shares)?

I bet that 95% of traders never get far and are still stuck in their little corner. Nothing wrong with that, but they must have years that they`re losing money or going nowhere at best.:cool:
 
On another forum, I saved what were called Farleigh's Rules that he derived from a successful career (in the late 80's and before the tech bubble 2001). Then he went all hedge fundy and hoped for the outlier. Not sure he ever achieved that. These Rules are, from memory, different to the 100 Secret Strategies to a small extent, specially the last 10 (relying on memory here).

Unfortunately, the site SharesGuru, is long gone. Probably retrievable but, even though it is a wet slow day here in Sydney, I don't really need to try too hard. And then, I found, today, in SharesCafe, the inheritor of ShareScene, a thread along a similar line, and with the 100 strategies outlined. And by no less than @Ann (I think), though called Anne there, but whose posts seem similar in content and style.

Taming the Lion

BACK COVER
boards.sharecafe.com.au boards.sharecafe.com.au

These 100 Strategies are from Taming the Lion, the book written by Richard Farleigh and published in 2006(?). They look like chapter headings and some of the points carry no information (the 100 rules were better).

Anne correctly goes on to say:
Notice something?
These are not strategies - these are observations of a person who has been trading the markets for a long time. They are good observations, and worthy of being included in a book - but this book was supposed to be about strategies, not observations, axioms, or whatever you would call these.
Click to expand...

Anyway, here they are:

Markets
1.0 The different markets have many useful similarities.
1.1 Fear the market.
1.2 Markets are more efficient than generally acknowledged.
1.3 Market opportunities are disappearing.
1.4 The markets can overwhelm government intervention.
1.5 The market is strengthened by speculation.
1.6 Respect the market not the experts.
1.7 Most professionals are not outguessing the market.
1.8 Listen and read very critically.
1.9 Understand recent history.


Comparative Advantages
2.0 To outperform the market you need a comparative advantage.
2.1 Everybody is a hero in a bull market!
2.2 Never stray from your comparative advantages.
2.3 A small percentage advantage is enough to outperform the market.
2.4 Test the advantage over time and make changes slowly.
2.5 Financial markets advantage #1: Information.
2.6 Financial markets advantage #2: Original analysis.
2.7 Financial markets advantage #3: Brokers and bankers have extra information and free insurance.
2.8 Financial markets advantage #4: Understanding market behaviour.
2.9 The Rules are based on six types of market behaviour:
  • There remain patterns and anomalies in the markets.
  • Markets are slow to react to structural influences.
  • Small companies offer more opportunities.
  • Markets go further than generally expected.
  • Markets move in underlying trends.
  • A view on the fundamentals can be combined with price movements to manage trading positions.

Risk
3.0 Manage and embrace risk.
3.1 Good ideas can lose money.
3.2 Asymmetry has fooled a lot of investors.
3.3 Wild swings and losses are uncomfortable, but they may offer the best rewards.
3.4 Diversify.
3.5 Assess risk - and then double it.
3.6 Risk adjust results after the trade.
3.7 Qualities of the successful trader.
3.8 Trading pressure increases with amount at risk.
3.9 The trader's dilemma - the stop loss?


Patterns And Anomalies
4.0 Look for patterns and anomalies.
4.1 Choose the right markets.
4.2 The share market dilemma.
4.3 Crisis situations almost always provide an opportunity.
4.4 Short term interest rates will tend toward the inflation rate plus the conomic growth rate.
4.5 Government bond markets for the major economies are not prone to crashes.
4.6 Currencies: two economies and fact or fashion?
4.7 Some markets are driven by supply.
4.8 Property prices often lag stock prices.
4.9 Chartists are the astrologers of the markets.


Big Ideas
5.0 Markets are slow to react to structural influences.
5.1 Look for the next Big Thing.
5.2 Ignore obscure theories and observations.
5.3 Only invest in the broad markets when they are in line with the prevailing economic environment.
5.4 Be methodical - use a checklist to quantify and add rigour to a view.
5.5 Buy stocks when economic growth is strong and inflation is weak.
5.6 Buy bonds when inflation and economic growth are both weak.
5.7 Buy commodities when inflation and economic growth are both strong.
5.8 Few assets benefit when inflation is strong and economic growth is weak.
5.9 You are unlikely to out-analyse the analysts.


Small Companies
6.0 Small companies offer more opportunities than large companies.
6.1 The quality of a company's management is by far the most crucial factor in determining its success.
6.2 Determining the fair valuation is more difficult with small companies.
6.3 Clearly identify the comparative advantages.
6.4 Be sure the business is sustainable.
6.5 Good products don't always sell.
6.6 Growth puts strains on small companies.
6.7 Be sure of a route to exit and adequate cash resources.
6.8 Shareholders can help unlisted companies.
6.9 Be pragmatic with due diligence.

Price Behaviour
7.0 Prices go further than expected.
7.1 Forget the old price.
7.2 People often misjudge probability and logic.
7.3 A price is an average of possibilities.
7.4 The probability can be asymmetric.
7.5 Be nervous when a market doesn't rally on good news.
7.6 Don't day-trade!
7.7 Avoid trading in options if you do not understand their pricing.
7.8 Back your hunches with at least a small investment.
7.9 Features of good trading models.


The Understanding and Use Of Trends In Prices
8.0 There is statistical proof that market prices trend.
8.1 Trends operate across commodities, currencies, interest rates, stocks and property.
8.2 Trends have been in operation for a long time.
8.3 It is not true that markets usually over-react.
8.4 Trends are resistant despite being well known.
6.5 Trends represent the gradual dispersal of information.
8.6 Price reaction is delayed by inertia and scepticism.
8.7 A rising price attracts buyers.
8.8 Economic cycles breed market cycles.
8.9 News against the trend is often ignored .


Market Timing
9.0 Combine fundamentals with price action.
9.1 Ignore the noise in price movements.
9.2 Don't be a hero - do not buy falling markets.
9.3 Trade with the trend - wait for the trend before you enter the market.
9.4 Add to winning trades, not losing trades.
9.5 It is safe to be with the consensus.
9.6 Do not use price targets or time limits.
9.7 If the fundamentals have changed, adjust the position accordingly.
9.8 You will not get the high or the low.
9.9 A powerful model shows probability is on your side.


Avoiding Temptation
10.0 Know when to stay out of the market.
10.1 Identify what is difficult about the existing environment. It may change.
10.2 Monitoring trends may alert you to opportunities you wouldn't normally find.
10.3 With success, bank some profits.
10.4 Negotiation is an art.
10.5 The evolution of the con-artist.
10.6 Wealth preservation is not simple.
10.7 Be skeptical of sophisticated retail products.
10.8 Management and brokerage fees should be minimal in a passive portfolio.
10.9 Follow these rules and be part of the hedge fund Revolution.


.... and what did Anne learn? (her words below)

1. Before entering a trade, ask myself "what proven strategy am I using here to justify this trade, or am I just buying on a whim?"

2. the better analogy for share trading is a game of backgammon, rather than a game of chess. I have heard of the chess analogy before - where clever market players think two, three , four steps ahead of the market ,etc, but I agree with Farleigh that the backgammon analogy works better. It takes into account the rather large element of randomness in the market that we don't have much control over, no matter how much research we do. **** happens, just like the time I had identified Amrad to be as close to perfect a short-term trade as you could wish for - the fundamentals, technicals and sentiment issues were lovely - and then out of the blue one of their joint partners announced that the fertility drug Amrad had developed was a dud.
Thud went the share price, taking all of my condifence with it.

Farleigh said that in Backgammon, you need skill to play, but you also have to handle the rolls of the dice - and they are random. Chance could have it that the worst player could beat the best player in a game if the rolls of the dice were uncannily lucky for the bad player and uncannily unlucky for the good player, but over time the rolls of dice become fairer and the skilled player ends up winning.

Farleigh said that when he followed the chess analogy, he would beat himself up mercilessly for trades that went wrong and analyse and re-analyse where he went wrong in his thinking. Any bad trade was bad and somehow his fault. But by adopting the backgammon analogy, he said life picked up for him in the emotional stakes, as now he accepts that lots of trades will be losers - and its not his fault and it's not the fault of his strategy (whatever that strategy is!).

3. I also liked his description of a market crisis which triggers panic selling. In a normal market, a sudden unjustified sell-off in a share, or whatever, usually brings out the bargain hunters, but not in a crisis. In a crisis all good sense is lost; people are dumping everything - the good and the bad. Fund managers are instructing their team to sell everything, even though the team beg and plead not to have to sell at such dumb prices; and the people who were clever enough to get out early and are now cashed up on the sidelines ready to re-enter won't re-enter because they are also terrified by the panic.

i read this and am now even more determined than ever to be one of the people who read the signs early and manage to dump their shares - good and bad - before the rot sets in. Then I want to calmly waltz in and pick up all the bargains once the market bottoms! Why not?

4. Here is a genuine strategy that he did share with me: short term interest rates should equal the sum of the inflation rate and the economic growth rate. If the two are badly out of kilter, then there's a trading opportunity ( in the bond market!)

5. Markets take time to fully price in a major event that calls for a price re-rating. The strategy here is to learn to recognise major events, access what that event might be worth to the share price, buy if the share price hasn't got there yet and wait until it does.
 
Last edited:
Dona Ferentes said:
On another forum, I saved what were called Farleigh's Rules that he derived from a successful career (in the late 80's and before the tech bubble 2001). Then he went all hedge fundy and hoped for the outlier. Not sure he ever achieved that. These Rules are, from memory, different to the 100 Secret Strategies to a small extent, specially the last 10 (relying on memory here).

Unfortunately, the site SharesGuru, is long gone. Probably retrievable but, even though it is a wet slow day here in Sydney, I don't really need to try too hard. And then, I found, today, in SharesCafe, the inheritor of ShareScene, a thread along a similar line, and with the 100 strategies outlined. And by no less than @Ann (I think), though called Anne there, but whose posts seem similar in content and style.

Taming the Lion

BACK COVER
boards.sharecafe.com.au boards.sharecafe.com.au

These 100 Strategies are from Taming the Lion, the book written by Richard Farleigh and published in 2006(?). They look like chapter headings and some of the points carry no information (the 100 rules were better).

Anne correctly goes on to say:


Anyway, here they are:

Markets
1.0 The different markets have many useful similarities.
1.1 Fear the market.
1.2 Markets are more efficient than generally acknowledged.
1.3 Market opportunities are disappearing.
1.4 The markets can overwhelm government intervention.
1.5 The market is strengthened by speculation.
1.6 Respect the market not the experts.
1.7 Most professionals are not outguessing the market.
1.8 Listen and read very critically.
1.9 Understand recent history.


Comparative Advantages
2.0 To outperform the market you need a comparative advantage.
2.1 Everybody is a hero in a bull market!
2.2 Never stray from your comparative advantages.
2.3 A small percentage advantage is enough to outperform the market.
2.4 Test the advantage over time and make changes slowly.
2.5 Financial markets advantage #1: Information.
2.6 Financial markets advantage #2: Original analysis.
2.7 Financial markets advantage #3: Brokers and bankers have extra information and free insurance.
2.8 Financial markets advantage #4: Understanding market behaviour.
2.9 The Rules are based on six types of market behaviour:
  • There remain patterns and anomalies in the markets.
  • Markets are slow to react to structural influences.
  • Small companies offer more opportunities.
  • Markets go further than generally expected.
  • Markets move in underlying trends.
  • A view on the fundamentals can be combined with price movements to manage trading positions.

Risk
3.0 Manage and embrace risk.
3.1 Good ideas can lose money.
3.2 Asymmetry has fooled a lot of investors.
3.3 Wild swings and losses are uncomfortable, but they may offer the best rewards.
3.4 Diversify.
3.5 Assess risk - and then double it.
3.6 Risk adjust results after the trade.
3.7 Qualities of the successful trader.
3.8 Trading pressure increases with amount at risk.
3.9 The trader's dilemma - the stop loss?


Patterns And Anomalies
4.0 Look for patterns and anomalies.
4.1 Choose the right markets.
4.2 The share market dilemma.
4.3 Crisis situations almost always provide an opportunity.
4.4 Short term interest rates will tend toward the inflation rate plus the conomic growth rate.
4.5 Government bond markets for the major economies are not prone to crashes.
4.6 Currencies: two economies and fact or fashion?
4.7 Some markets are driven by supply.
4.8 Property prices often lag stock prices.
4.9 Chartists are the astrologers of the markets.


Big Ideas
5.0 Markets are slow to react to structural influences.
5.1 Look for the next Big Thing.
5.2 Ignore obscure theories and observations.
5.3 Only invest in the broad markets when they are in line with the prevailing economic environment.
5.4 Be methodical - use a checklist to quantify and add rigour to a view.
5.5 Buy stocks when economic growth is strong and inflation is weak.
5.6 Buy bonds when inflation and economic growth are both weak.
5.7 Buy commodities when inflation and economic growth are both strong.
5.8 Few assets benefit when inflation is strong and economic growth is weak.
5.9 You are unlikely to out-analyse the analysts.


Small Companies
6.0 Small companies offer more opportunities than large companies.
6.1 The quality of a company's management is by far the most crucial factor in determining its success.
6.2 Determining the fair valuation is more difficult with small companies.
6.3 Clearly identify the comparative advantages.
6.4 Be sure the business is sustainable.
6.5 Good products don't always sell.
6.6 Growth puts strains on small companies.
6.7 Be sure of a route to exit and adequate cash resources.
6.8 Shareholders can help unlisted companies.
6.9 Be pragmatic with due diligence.

Price Behaviour
7.0 Prices go further than expected.
7.1 Forget the old price.
7.2 People often misjudge probability and logic.
7.3 A price is an average of possibilities.
7.4 The probability can be asymmetric.
7.5 Be nervous when a market doesn't rally on good news.
7.6 Don't day-trade!
7.7 Avoid trading in options if you do not understand their pricing.
7.8 Back your hunches with at least a small investment.
7.9 Features of good trading models.


The Understanding and Use Of Trends In Prices
8.0 There is statistical proof that market prices trend.
8.1 Trends operate across commodities, currencies, interest rates, stocks and property.
8.2 Trends have been in operation for a long time.
8.3 It is not true that markets usually over-react.
8.4 Trends are resistant despite being well known.
6.5 Trends represent the gradual dispersal of information.
8.6 Price reaction is delayed by inertia and scepticism.
8.7 A rising price attracts buyers.
8.8 Economic cycles breed market cycles.
8.9 News against the trend is often ignored .


Market Timing
9.0 Combine fundamentals with price action.
9.1 Ignore the noise in price movements.
9.2 Don't be a hero - do not buy falling markets.
9.3 Trade with the trend - wait for the trend before you enter the market.
9.4 Add to winning trades, not losing trades.
9.5 It is safe to be with the consensus.
9.6 Do not use price targets or time limits.
9.7 If the fundamentals have changed, adjust the position accordingly.
9.8 You will not get the high or the low.
9.9 A powerful model shows probability is on your side.


Avoiding Temptation
10.0 Know when to stay out of the market.
10.1 Identify what is difficult about the existing environment. It may change.
10.2 Monitoring trends may alert you to opportunities you wouldn't normally find.
10.3 With success, bank some profits.
10.4 Negotiation is an art.
10.5 The evolution of the con-artist.
10.6 Wealth preservation is not simple.
10.7 Be skeptical of sophisticated retail products.
10.8 Management and brokerage fees should be minimal in a passive portfolio.
10.9 Follow these rules and be part of the hedge fund Revolution.


.... and what did Anne learn? (her words below)

1. Before entering a trade, ask myself "what proven strategy am I using here to justify this trade, or am I just buying on a whim?"

2. the better analogy for share trading is a game of backgammon, rather than a game of chess. I have heard of the chess analogy before - where clever market players think two, three , four steps ahead of the market ,etc, but I agree with Farleigh that the backgammon analogy works better. It takes into account the rather large element of randomness in the market that we don't have much control over, no matter how much research we do. **** happens, just like the time I had identified Amrad to be as close to perfect a short-term trade as you could wish for - the fundamentals, technicals and sentiment issues were lovely - and then out of the blue one of their joint partners announced that the fertility drug Amrad had developed was a dud.
Thud went the share price, taking all of my condifence with it.

Farleigh said that in Backgammon, you need skill to play, but you also have to handle the rolls of the dice - and they are random. Chance could have it that the worst player could beat the best player in a game if the rolls of the dice were uncannily lucky for the bad player and uncannily unlucky for the good player, but over time the rolls of dice become fairer and the skilled player ends up winning.

Farleigh said that when he followed the chess analogy, he would beat himself up mercilessly for trades that went wrong and analyse and re-analyse where he went wrong in his thinking. Any bad trade was bad and somehow his fault. But by adopting the backgammon analogy, he said life picked up for him in the emotional stakes, as now he accepts that lots of trades will be losers - and its not his fault and it's not the fault of his strategy (whatever that strategy is!).

3. I also liked his description of a market crisis which triggers panic selling. In a normal market, a sudden unjustified sell-off in a share, or whatever, usually brings out the bargain hunters, but not in a crisis. In a crisis all good sense is lost; people are dumping everything - the good and the bad. Fund managers are instructing their team to sell everything, even though the team beg and plead not to have to sell at such dumb prices; and the people who were clever enough to get out early and are now cashed up on the sidelines ready to re-enter won't re-enter because they are also terrified by the panic.

i read this and am now even more determined than ever to be one of the people who read the signs early and manage to dump their shares - good and bad - before the rot sets in. Then I want to calmly waltz in and pick up all the bargains once the market bottoms! Why not?

4. Here is a genuine strategy that he did share with me: short term interest rates should equal the sum of the inflation rate and the economic growth rate. If the two are badly out of kilter, then there's a trading opportunity ( in the bond market!)

5. Markets take time to fully price in a major event that calls for a price re-rating. The strategy here is to learn to recognise major events, access what that event might be worth to the share price, buy if the share price hasn't got there yet and wait until it does.
Click to expand...
Good find. I liked Annes summary.
 
I found an earlier version of the 100, then rediscovered this thread. Rather than a new thread, here are the earlier ones, derived when RF was at BT.

As a footnote, he did retire to Monte Carlo at age 34 after the BT stint and then a Caymans hedge fund for 3 years.
20221226_132118.jpg
 

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