How to spot a rat in the markets – my 30 years of experience means I can sometimes see when investors are being stupid and greedy

 
Steve Sedgwick
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Global Markets Continue Last Week's Steep Decline
Don't be a fool - these impending market disasters can be avoided (Source: Getty)

I know I don’t look old enough, but this summer will mark my thirtieth year in the City of London.

It was back in 1988 that I first stepped on to the trading floor of Kleinwort Benson at 20 Fenchurch Street, and I’d like to think that that day was the start of a steep learning curve. A curve which I’m still on, by the way.

One of the early lessons that senior traders, and then more latterly senior journalists, tried to teach me was how to spot a rat.

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Rats come in various shapes and sizes, but one’s ability to spot them early enough to act does tend to ensure longevity in the cutthroat Square Mile.

From Nick Leeson blowing up Barings to Marconi’s slow-motion car crash, from Iceland becoming the world’s most dangerous hedge fund to cryptocurrencies, some impending disasters are easier to spot than others.

Of course, I’m not pretending to have either dealt perfectly upon all of these hiccups in the early days, or shown great reporting prescience every time a rat comes along, but sometimes you just can’t fail to get a win.

I can tell you straight away the best and worst thing about my current job.

The worst is going to bed before your five-year-old daughter at circa 7pm so you can get up in the middle of the night five days a week.

The best, however, is the fact that repeat dumb behaviour by markets, and certain participants, hands out several freebies a year that will always make you look smarter than the average bear.

Take this month’s Argentina blow-up, for example.

When a country which has had more debt blowouts than I’ve had bottles of Malbec — and that is a significant number, I can assure you — is issuing 100-year paper at sub-eight per cent yields, as it was last summer, you know you only have to wait for the inevitable to happen before being proved right.

When investors can’t help themselves but hoover up vast quantities of the likes of Snap or Go Pro at IPO, regardless of the actual proven fundamentals, you know you pretty much just ride out the “you just don’t get tech, do you, Steve” bull, and wait for the quarterly reports to come in over the months ahead.

So, at the moment what are some of the no-brainers out there?

Well, there is the perennial joke that is the Italian debt market, propped up by a central bank terrified of letting markets decide on another shambles of a political situation.

Elsewhere, there’s an extension of the Argentina trade, otherwise known as the moment the hedge fund hotel check-out gets jammed, as people finally take a look at the current account deficit debacle of a host of emerging market countries

Other favourites of mine include pretty much any company that thinks it can “do an Amazon”, and never actually make money until it has attained global domination... I mean, greater market share.

Guess what? You can’t all be Amazon, and one day soon the market will suss that.

Still, the repeat stupidity, greed, and plain gullibility of the herd will hopefully keep me in business for the next 30 years.

(Editor’s note: both Snap and Go Pro were not immediately available for comment when contacted by CNBC.)

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City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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