The profits can come fast — and so can the losses

Press, 7 March 1984, Page 26

The profits can come fast — and so can the losses

Mr Geoff McDonnell, futures manager Of Mair and Company, Ltd, one of the two Christchurch firms trading in futures, has seen investors make 100 per cent on their investment in a month. Substantial losses can also be made quickly, of course.

Mr Peter Marshall, of John Marshall and Company, Ltd, the other Christchurch futures broker, has also seen winners and losers, and has formed an idea of the winning personality: someone who can make a plan, keep to it, act without hesitation, and take losses with equanimity.

Mr McDonnell sees mental toughness as a prime requirement for the successful investor.

Investors telephone their brokers regularly, usually two or three times a week and sometimes daily. The brokers say they offer opinion, not advice, on the market. But the contracts also allow them to close out an investor if they cannot be contacted and there is considerable movement in the market.

Beverley Hawke is one of the two women handling futures accounts in Christchurch, Jenny Chin, at Marshall’s the other, says that her firm has a number of women clients and that in some partnerships of husbands and wives trading futures it is the wife who takes the most interest and makes the decisions. Christchurch is at the heart of wool-futures trading. Marshall’s a third-gen-eration Christchurch wool trader, is the biggest futures trader in New Zealand, and with Mair’s handles well over half of the country’s futures transactions. There are three active brokers in Auckland, one in Wellington, one in Napier, and about 15 associates in New Zealand.

Twice a day the market is held on a conference

telephone call, the brokers taking it in turn to supply a chairman for the call.

The buyers state their buy and sell positions, trades are made, and the call concludes with members checking the number of transactions made and agreeing on the tone of the market for press statements.

At night, the information is telexed to London where the clearing house makes settlements between the brokers.

The life of a broker can be hectic if the market is moving up or down, phones will be ringing as clients seek advice or give instruction.

During the call the broker taking part in the conference is supported by another taking calls from clients transmitting orders for trading. The brokers take their work home at night, telephoning clients they have been unable to contact during the day. In the brokers’ offices, Reuters teleprinters churn out international economic news.

The brokers and speculators watch the movement of the United States dollar of wool prices in Australia, South Africa, and Argentina — and study other economic indicators. They hold daily conferences with their firms’ wool-trading staff to check on any movement in what futures people call the “physical” market. Personality is important. The brokers have to be able to “take it” from poor losers.

"But,” says Bev Hawke, “when they’re winning you’re the greatest person around.” The human touch is important in the conference calls. Brokers can sometimes detect excitement in the voice of another and realise he has a lot of contracts to sell, or buy. They will react according-

lyBut the brokers clearly get great job satisfaction. Peter Marshall, a long-time wool man, Geoff McDonnell, a former AMP insurance representative, Jenny Chin and Bev Hawke, former typists, are not allowed to buy or sell for themselves, but work hard and long with the speculators.

Eventually the futures market in New Zealand will be computerised. Instead of telephone conference calls, quotes will come up on screens in offices. Clients will be able to watch on computer screens of their own. With this system, some of the flair which has been used in auctions and sales for centuries will no longer be needed in futures trad-

ing. These redundant skills will include the ability to read the intentions of other traders. Instead each will be dealing with anonymity of figures on a screen. The two ways of trading

relfect a lesser schism in futures trading: the speculators who swear by technical analysis and those who trade on “fundamentals.”

The technical analysts, the chartists, make graphs of price movements and analyse these with all sorts of pet theories about the shapes of the graph and the trends portrayed.

The fundamentalists base their analysis on broad economic trends rather than the charts.

Regardless of the method, or mixture of methods, used, the spectators are, in their willingness to speculate on risks, providing commodity producers and users with a chance to reduce their risks. In New Zealand the commodity producers the farmers, have been slow to use the futures market as a way to hedge their risk. This is clearly because of the subsidy on, wool. But when wool breaks the supplementary minimum payment level, futures brokers expect farmers to use the market increasingly. Some onlookers say that the futures markets are open to manipulation as when the Hunts tried to corner the world silver and soybean supplies in America.

But futures are not alone in being subject to manipulation and insider trading. For the speculator, futures will increasingly offer an investment outlet that will not hurt the person with risk money, a cool nerve, and a taste for quick losses and profits. Overseas some say the small speculator cannot win, because ultimately what counts is information, and the big firms have the greatest access to this. What does the new investor need? The person likely to be wiped out is the one with only just enough cash to cover the cost of one