Category Archives: shares

I think the key to making money at something is to invest for the long term, be prepared to lose before you win, to put your money where your mouth is and take big risks…

…to an extent.

You probably know about survivorship bias, where you listen to nothing but the tales of success from people who took big risks. There are definitely many, many cases of people taking insane risks, those risks playing out and them making a huge, incredible success of it. In the world of video games, valve deciding to sink all the half life profits into HL2 AND also trying to create a digital distribution store when retail was still all-powerful was an insanely high risk venture. It worked, and the rest is history. Making a game which fits in no established genre such as the Sims or for that matter, ‘Democracy’ is also a big risk. Doing this entails being prepared to be wrong in a BIG way, and lose 100% of your investment.

This is something I am minded off today when reading a very long, depressing and complex email about a renewable energy investment I made that is being held up and rejected by government bureaucracy (with zero cause) which could, theoretically lose me a fair chunk of money. Real actual *OUCH* levels of money. It will be extremely vexing if this is the case. I tolerate that sort of risk, because when investments like that work, they work very well, and the returns are great.

I’m a high-risk investor who is happy to tick the ‘yes I know what I’m doing and may lose it all’ box on a regular basis. I have some money in lithium mines, some in palladium futures, lots in the electric car company ‘Tesla’ and a bunch of robotics and biotech stuff. Some of this has been a huge success. others… not so much. Overall… I think I’m doing well, but you never get to say that until you cash out. I’ve also invested in indie games, both as a publisher (Redshirt, Big Pharma, Political Animals, Shadowhand) and as a passive investor. Some of these made several times my money back, some have lost me money.

And right now…as I type this I have two CFDs (very short term bets) on Tesla, both of which I am DOWN on, and both of which cost me money each day just to keep the bet running. I have made 37 consecutive profitable trades doing this, but may be close to coming unstuck on these two. Only time will tell. You can probably understand why I thought I couldn’t lose: (The loss calls still make a profit, just at the lower range of my position)

The trick is… I’m never betting the farm. Do not bet the farm. Ever. I’m not even betting a small barn from the farm.

Don’t think I’m not tempted. I’ve seen stock market trades, AND video games, where I’ve thought ‘LOL, this is easy money. I should sell the house, car and liquidate everything else to really max out this sure thing’. Sometimes those trades shoot way up, and I hate myself for being such a coward. Sometimes they go up a bit. Very, very rarely, they crash like a meteorite. The end result of my level of caution is that I’m not a billionaire, but I’m not in the gutter either. This is a *good thing*.

Do not risk everything to make your dream indie game, or fund the writing of your first novel, or even your second or third or tenth. I’ve made a lot of games (at least 20), and even if I thought my next game was a sure-fire hit, I wouldn’t bet ANY money that I couldn’t afford to lose. Obviously this is much easier to say with no mortgage and some cash in the bank. Normally people cannot possibly make a game without spending their last dollar on it… or can they?

These days we have kickstarter, we have patreon, we have indie publishers. if you cannot persuade anyone to give you the minimum money you need to make an early access game through any of those three avenues, then that is a BAD sign and NOT a sign you should remortgage the house or sell a kidney. There is a myth that you have to ‘risk it all’ to become a hit, which is perpetuated by Hollywood movies, and TV shows where this trope of ‘risking it all’ and ‘succeeding just before they ran out of food’ becomes embedded in peoples idea of what it means to be ‘creative’. The romance of the ‘struggling artist eating out of bins who then becomes a billionaire’ is frankly bollocks.

Democracy 3 is a good example. Its a successful game that made me some decent money. Did I risk everything to ‘take a chance’ and make a hit? Nope. I risked fuck-all. I coded that in my spare time while I had a full time job (and a contract to ensure that was ok). I then made a sequel when I knew that the original was already popular. My wife and I both worked full time and we had no kids, so me then deciding to quit and make more games was zero risk, especially as I was already making more from my older games than I was getting in salary anyway. In all my times making video games from 1998s Asteroid Miner onwards, I’ve been unable to pay the mortgage for two months in total.

By all means take some risks. Risks are good. Risk is part of life. Don’t make any decision that could wreck your life and screw up your family.

 

 

Not games related… I was being interviewed at rezzed for some BBC business thing about games & money etc, and they asked what I did with the profits and I mentioned trading the markets, and they asked if my success at making games translated to beating the market, and I had to confess that the data suggests that it does. Which is kinda weird and unlikely I guess.

Background: I used to work for a big trading IT company (like Reuters) on the UK stock market. I wasn’t a trader, but I was IT support. I stared at market dealing software all day. This was YEARS ago. I also studied at the London School of Economics, so I’m vaguely business / markets focused since late teens I guess.

I read a great book by this guy:

Nassim Taleb

Who was a trader, and basically points out how many people who think they are beating the market are just delusional, and idiots who mistake luck for skill. He also has a very interesting methodology for evaluating success. His system is essentially to calculate the downside risk into the upside calculation. So if you make (for example) a game about ducks who go skiing, and it makes a return on investment of 500%, that does not really mean you have made a return of 500%. You need to calculate in the risk. if it was 95% likely to flop, then the decision was a stupid one, even though the upside is 5x, the downside is greater, so your decision was dumb, and you should be fired, despite making a fortune.

We never think that way. Mark zuckerberg is a genius because he turned down billions of dollars for his company and is now worth much more. How clever! But we hear about Zuck, not all those people who were offered billions, turned it down, and then ended up flipping burgers five years later. We automatically discount them. Nassim doesn’t.

Anyway… this is all background to me illustrating that somehow, weirdly, I am doing well on the stock market. Not amazingly dotcom-well, but better than keeping the money in the bank. Right now, depositing the money in a bank in the UK will get you *maybe* 2% if you lock it away. Inflation is around that anyway, so you gain nothing.

My shares, since 2013 have earned me an annualized profit of 9.16%. Pretty fucking good.

How am I doing that?

Leonardo Dicaprio in The Wolf Of Wall Street

Firstly, I try to minimize charges. Some people buy £1,000 of shares. Pointless. You probably pay £15 to deal, so £30 to buy and sell (plus stamp duty and spread). I never buy or sell less than £5k, preferably £10k, rendering the dealing charge pretty trivial. (I invest enough, and trade often enough to get a lower trading cost, which is pretty handy. This opens up smaller price-swings to being worthwhile to trade against.)

Secondly I only buy and sell companies making a profit. it’s not that I don’t think get big fast works, its that I’ll let you gamble on it, not me. Thirdly, I keep an eye on the spread between buy and sell, and factor it in. This means I buy more large companies than small (which have lower liquidity and higher spreads). Spreads can really kill your profits. Fourthly, I set stop losses (I never used to…and have finally learned my lesson). The minute I buy I set a stop loss order. No more watching shares slide down…and down…and down.

In terms of choosing shares I’m pretty experimental. I’ve bought and sold UK equities, foreign listed equities, Italian Government debt and Kazakhstan copper mining. I’ve bought commodity tracking ETFs, and also leveraged and short ones. I’ve bought corporate bonds, and done quite nicely from them. I’ve also invested in investment funds for a more conservative long term growth strategy. When it comes to equities, I look for profit, preferably consistently growing over several years, and a relatively low Price to Earnings ratio. I also like a decent dividend, especially if profits are growing and the dividend cover is high, making me think dividend growth is imminent and thus the price will rise soon.

This all sounds very sensible, but its actually pretty much nonsense because despite my return (annualized) being 9.16%, the FTSE100 (Uk market) has grown by 7.26% in that time anyway, meaning I am only just beating a simple market tracking fund!

Still… I love looking at numbers and spreadsheets and doing calculations and also taking risks and business decisions, so this is my World of Warcraft, the game I keep coming back to and trying to win at. At least my hobby doesn’t cost me money.

Yet.