Sleepless in Salamanca

Michael Barker has been on a white-knuckle roller coaster ride since the start of the year: BHP Billiton’s strong price increase provided one of the high spots; the WA junior miner Cazaly Resources was a low spot after it failed to win its case against Rio Tinto.

Leveraging his investments with a margin loan heightens the market volatility for Michael. He uses his margin loan to invest in “75LR” companies '” these are ASX stocks where the investor is allowed borrow 75% of the value of the stock. Yet, Barker is by no means a highly geared trader; for example, he does not use derivatives such as CFDs.

Some Eureka Report subscribers claim we're too hard on traders. They tell us a sophisticated player can “trade” and “invest” in parallel, drawing on different skills for each.

It's an open question. Either way, as a firm believer in long-term, value focused investing, Eureka Report has been intrigued by Michael's approach and keen to learn more about the trading life.

Michael has volunteered to file a fortnightly trader's diary, to show us how the other half lives. Bleary eyed from a testing eight-hour time difference, Michael files his first report today.
. . .

My day begins at 1.30am. It's rough making a full-time living from trading the Australian market, and it's even tougher when you suddenly find yourself in Salamanca, west of Madrid in central Spain, but you do what you have to do.

I have half a hour to wake up and read the latest, but I've already read the Australian business news for the day. If you've ever wondered what time the major Australian daily newspapers update their websites, it's usually 1.30 –2am Sydney time. That's 5.30–6pm Spanish time, which is pretty handy and well before anybody in Australia has even thought about checking the newspaper.

Open my internet browser, Firefox, and my email inbox . There are a ten new Google news alerts. One is for “iron” “ore” “china”, and I wonder whether the Chinese have finally admitted defeat. I open the alert and scan the headlines. No, they haven't, and I've already read all these articles. Some of them contain Chinese propaganda, and the rest Western economic rationalism. Or is it the other way around? Anyway, delete.

Where is the Chinese wallet when you really need it? And at the moment my BHP Billiton and Rio Tinto shares really need it. They've been irrationally buried in the market correction, and need some good news.

I open some more Firefox tabs. Two for CommSec, one for ABC's business news, and another for The Age breaking business news. Nothing much there. Peter Costello made a non-decision on Fortescue getting access to BHP Billiton's infrastructure, which means Fortescue can't use the railway lines of the Pilbara. That doesn't surprise anybody, surely. The Treasurer of a country is not going to put half his budget surplus at risk, is he '” especially if he wants to get to The Lodge any time soon.

It's 10.01am Sydney time and there's a red blur on the watchlist where BHP should be. Bloody hell! I rub my eyes to see the extent of the damage. Down 57¢. What? You're kidding, right? Hasn't the market heard that the current analyst forecasts for BHP Billiton are based on commodity prices that are still way below the admittedly collapsing spot prices?

Don't they know it’s worth somewhere between $34 and $38 at the very least? Haven't they heard of the 19% boost BHP will get for its contracted iron ore this year? Haven't they? Bloody hell! The world has gone mad, but in the other direction this week.

I wonder again about how I can organise to buy more BHP at this crazily low price. What a buying opportunity! But I'm in a bit of a hole there. I sold off my last microcap industrials last week, Ventracor (VCR) and Pro Medicus (PME), to buy some more BHP Billiton and Rio Tinto. They seemed cheap then, especially considering the increase in iron ore contract prices and the rumour of Rio Tinto merging with Alcoa. But they've collapsed further still. Oh well, at least I didn't buy Paladin (PLN) and Zinifex (ZFX).

I look at my smallish holding of Indophil (IRN) shares, also down quite a bit, and wonder if I should sell them to buy more BHP, which would also boost my margin loan's available collateral. The idea is that when BHP does hit bottom, which must be soon, I would increase my margin loan, buy more BHP and enjoy the ride back to sanity . But I bought the Indophil shares for very good reasons too '” namely their Tampakan copper and gold mine in the Philippines and for Xstrata's backing '” and I'm loath to sell them now, especially at a loss.

After another hour of willing BHP Billiton and Rio Tinto into the green with no success I log off. It’s 3.30am and any sensible person would be in bed. My head is spinning with the phrase “go away in May, go away in May”, which makes sleep difficult and haunts my dreams.

The alarm goes off: 7am (3pm Sydney time). Crank up the computer and log on to CommSec. Green! BHP Billiton up 5¢ and Rio Tinto up by more than 30¢. Log off, and head back to bed. This time to dream the dreams of a successful trader.