Allan Thomson: JSE


BROADCAST TRANSCRIPT: Single-stock futures – that’s going to be a place of note tomorrow, lots of action no doubt coming with the way the rand is moving, falling in the wake of that announcement on this programme that the inflation rate will not be released tomorrow, unprecedented as far as we know. It will only be released now in 11 days’ time, after all the figures have been reworked, probably back to 1999. Alan Thomson from the JSE joins us now. Allan, it’s been an extremely volatile place for shares. Just take an example of Abil, which I know you do have a single-stock future on. At one stage today, after their results were released, up 6%, closed the day 4% down. So that’s a 10% swing. If you had had R100,000 invested at the wrong time, today at close of trading it’s worth R90,000. I guess if you had R100,000 invested in a single-stock future at the wrong time, they could have carried you out on a stretcher?

ALLAN THOMSON: Alec, that’s quite possible. I think the corollary that’s equally true is that you could have planned your next ski-ing holiday in Switzerland had you got it right. And I certainly think that is the benefit of the single-stock futures, in that you can play the market both ways. You can make money when the market goes down and you can make money when the market goes up. But obviously the reverse also holds true.

MONEYWEB: Are the private investors getting scared off by this volatility though? These are really big bets you’re talking about now.

ALLAN THOMSON: No. I don’t want to sound like I’m flogging a dead horse. I keep on repeating that on the programme. I’ve heard the comments that single-stock futures are shares on steroids, etc. etc. It’s only if that is how you plan your portfolio, if you do gear yourself up. However, you can replicate. Exactly what you do on the underlying market you can replicate on the single-stock futures. So there’s no guarantee, you don’t have to gear yourself up. You can take very small portions, which would be exactly aligned to your position had you been trading on the market. And if I can just answer your other question in terms of volatility, a lot of single-stock futures are getting involved just because there is volatility. You are not going to make money on a market that is staying absolutely static. The only way you will make money as a trader and by trading single-stock futures is if there is some volatility.

MONEYWEB: But it’s hard. We tried and, if we had stayed in, if your friends at Nedcor Securities had stuck with us, we would be looking pretty good now. But I suppose you’ve got to have big goolies to do that?

ALLAN THOMSON: Alec, you put me in a difficult position. What do I say? Maybe you need more competent traders on your Moneyweb team. [Laughter.]

DAVID SHAPIRO: We called at the bottom of the Impala market, really.

MONEYWEB: Yes, we called the bottom and then they sold us out.

ALLAN THOMSON: No, Alec, I don’t think anyone has ever said that making money on the market and trading is an easy business. It’s not money that falls from trees. One has to do one’s research thoroughly, one has to look at the companies, and just because you’re trading a single-stock future, doesn’t mean that any other fundamental research that you would do on shares is no longer valid. You would have to do that research and just apply it to the single-stock futures.

MONEYWEB: But that’s the problem, we do the research, but the intraday movements can almost wipe you out. What kind of a position do you take in a single-stock futures market? What is the period of your position? We’ve heard the traders, Arthur Buchner and his colleagues, saying to them three hours is a long position.

ALLAN THOMSON: For a professional trader, three hours could be a long position. It’s probably a geared position. But for probably the retail investor, he would have a longer-term view, which could be days, weeks, months – even years.

MONEYWEB: So you’re happy for us to buy something and to stick with it over a period of time?

ALLAN THOMSON: Alec, you can do whatever you want with that share. I think all the Aids orphans want is for you to make some money on it and get a return.

MONEYWEB: Well, that’s out of our hands now. We were told no longer, we are not allowed to play any more, we’ve lost too much, apparently. We lost all our profits.

ALLAN THOMSON: I think that is very much determined by the risk profile of the investor, and how often you look at the market. If you are going to be trading intraday, you need very up-to-date information, you need good systems to track where the shares are, what the liquidity is. So, in my mind, the more professional trader would look at intraday trading. If you don’t have that kind of information available to you, then perhaps slightly longer term, in terms of days, months, weeks.

MONEYWEB: But what you’re saying, for the private investor it can be an alternative to buying shares?

ALLAN THOMSON: Absolutely. I think that’s been my punt all the way along that it’s an alternative to buying shares. You’ve just go so many more options, and I use the word “options” advisedly. You’ve got so many options available to you, and one of the first one is that you can actually short the market and you can go short for weeks, months. I think the common perception is that an investor can only make money if the share market goes up. If the share market comes down, you lose money. Single-stock futures turns that on its head. You can make money when the stock comes down, but you can also lose money when the market goes up.

Posted in Market commentary

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