Peter Davies of Jigsaw Trading: Investing During The Pandemic; What Should I Do With My Money Considering All of the Volatility and Uncertainty Today

With investing, you make your choice and stick with it until you are proven wrong. Worrying and second-guessing are sure ways to close winners early and let losers run.

As a part of my series about “Investing During The Pandemic,” I had the pleasure of interviewing Peter Davies, CEO & Founder of Jigsaw Trading.

Davies is an active order flow trader in S&P 500 futures and founded Jigsaw Trading in 2010. Davies founded the company because he was frustrated with the modern trading platforms available to investors and he was on a mission to create tools that presented order flow information in a more logical and understandable manner. Jigsaw Trading offers investors unique analytical trading tools and software to monitor order flow in global futures markets.

Thank you for doing this with us! Before we dig in, our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

I was a self-employed IT consultant from a young age, and in my mid-twenties, I decided to leave the U.K. by taking IT contracts in different countries. Apart from the fun and the money, as a U.K. citizen working overseas, I was also tax-free. The downside was that I could not invest in a U.K.-based pension. I ended up with a pot of cash and no clue what to do with it. Unregulated financial advisors that target expatriates living in Asia helped me figure out what to do with my money and, in the process, lost 30 percent of my net worth in two short years. Like many, I was clueless. I decided to educate myself and take care of my own financial destiny.

Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?

One that still makes me smile was when I was an equities day trader, I bought eBay straight off the open (it was earnings day for them). It immediately shot up and was up $3 a share within minutes. It was showing no sign of letting up, and I was heartily patting myself on the back and ready to add more shares. I looked at the account window and noticed I’d somehow gone long one share instead of 1,000. I made $1 after commissions.

Are you working on any exciting new projects now? How do you think that will help people?

Yes, we just released a market-making manual from arguably the leading expert in market-making techniques, Gary Norden. He was a market maker from the age of 18, as well as a floor trader on LIFFE and head of options at NatWest. Market making is a service the exchanges pay for to keep prices tight. Market makers get paid to trade both sides of the market, risking their own money and generally make money in the process. We teach those skills but home traders have the advantage of being able to trade only the most advantageous side of the market at any time.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

In trading, I was fortunate, or brazen enough, to network with professional traders and discuss what they did. It was a million miles away from what I was reading online. Many of the techniques (backing large forex options; open outcry, verbal market making between banks), you couldn’t do at home anyway, but with every story, the knowledge deepened — even if you wouldn’t use the techniques. Later, John Grady from No BS Day Trading, a contact from Discover Trading, Gary Norden and Alex Haywood from Axia Futures, all became good friends that I’ve kept in touch with and have helped me really expand my knowledge of the game, both in terms of technique and trader development.

Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?

The sense I have now is that of exhaustion and confusion with all the changing rules. I think panic is over and boredom/annoyance has set in. I think social media has been very helpful in terms of people keeping in touch and keeping their sense of humor. For those that have lost their business, it’s heartbreaking, but so far, it’s not hit any of my close friends that way. It’s tight, but they are managing. For now, for those we can’t visit, calls and social media interaction in a positive manner are really helpful.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. As you know the stock market and the economy in general have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing $500 every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?”, what would you say to them?

If you are averaging into a position monthly, I’d have to be wondering if these prices are a good time to do that. How many businesses have you driven past in your area that are gone for good? How likely is it that you might need that $500 at some point in the near future if these cycles of shutdowns continue? Given the sheer amount of businesses that have died, are these stratospheric prices reasonable?

What I would do: Keep the $500 a month for now and put it in your rainy day account. If you miss out on some of the moves up, that’s not the end of the world.

If we get past COVID and things still look rosy and we continue to climb, start getting back in. If the stock market does plunge and start reflecting the damage COVID has done to the economy, you can use that rainy day fund to scale in as it descends.

Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?

For now, it’s tricky. Airline stocks are down and could be a bargain, but which ones will still be in existence in 12 months? Buying stocks when a sector is hurting is good. My personal guidelines are: Don’t try to time the bottom, scale in as it goes down and back up, and only invest in companies with strong cash positions and low debt. These are the businesses that will weather the storm.

Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?

I know hedge fund managers that have left equities alone altogether; prices aren’t making a lot of sense right now. The people that I see benefiting the most from volatility, in my experience, are day traders. Their most profitable days are from news-driven volatility. News comes in, often pushes oil or equities one way, and that is a move they can exploit. Day trading is not easy, but trying to exploit up and down volatility over weeks is very difficult. The shorter the time period, the more you can exploit a single volatility event.

Are there alternative investments that you think more people should look more deeply at?

There is a lot of cash floating around at the moment, and interest rates have been extremely low for years. I like emerging markets, places where their economies have room to grow a lot. Laos and Myanmar are growing very quickly, The tourism industries in Vietnam, Cambodia, Myanmar have a long way to go. This isn’t a place to put a large percentage of your portfolio, though; it’s risk money. I also like property. Even at a time when landlords aren’t popular, there are some good opportunities out there. Things like gold and silver are hyped too much in the media, in my opinion, so the swings are too wild.

If a person in their thirties and forties came to you today and said that they have $10,000 that they want to put away today for a long term investment what would you advise them to do with it?

I like bad news event-based investing. Product recalls are a good example. Bad news tends to cause an overreaction. Let’s say a car manufacturer has a car recall because of a brake problem. If the market overreacts to it and they are financially strong, I see that as a buy. I would not put $10k into one recall, but I would start looking for some.

During this time, I’d be on the lookout for the S&P 500 to get hammered. I can’t say when this will happen, but we’ve been on the longest bull run ever. Typically, holding money in the S&P 500 and reinvesting dividends is very profitable. It’s just that I feel it’ll be better if prices slide a lot first.

Ok, thank you! Here is a more general finance question. You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing what would you say? Can you please give a story or an example for each?

First, look for suppliers. When a company is hot, such as Tesla, their prices will be high, but their suppliers will be doing well too. By all means, make a Tesla play, but spread it between them and their suppliers.

Second, use your eyes when you are out and about. Peter Finch made his money this way, listening to his wife about new products she loves, seeing what’s generating a buzz in the shops, what’s the hot, new thing that didn’t get media attention now.

Third, if something was priced at $300 and is now priced at $5, it’s junk. I’ve seen so many people say, “Pete, this is great, I can buy it at $5. Just think what will happen when it gets back to $300.” The simple truth is, it won’t. Forget what prices were when something drops that low, unless you think Harry Potter is going to come and leviosa that stock back up.

Fourth, never try to pick tops and bottoms. Nobody can do it, even if everyone says they can. At any point in time, stocks/futures are more likely to continue what they are doing, rather than change and do something else.

Finally, don’t just listen to your father. What was right in my day may have changed in yours.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Don’t worry about the things you can change — just change them. Don’t worry about the things you cannot change, there is nothing you can do anyway.”

My own father is a worrier. He always has been; he even worries on my behalf. When I heard the above quote, I decided to be a sensible risk-taker. I had failures but brushed them off. I can’t say I’ve never worried, but it doesn’t last long as I always remember that it doesn’t help.

With investing, you make your choice and stick with it until you are proven wrong. Worrying and second-guessing are sure ways to close winners early and let losers run.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. :-)

It would be the “enjoy the journey” movement.

So many people are focused on where they want to be that they don’t enjoy where they are. That goes for charity too: Don’t tell yourself you’ll give a lot when you reach your goals. If you can help those that pull your heartstrings just a little now — for me, it’s orphanages — it’ll put a smile on your face and give you another goal.

Happiness is a decision. Don’t be so driven you forgo it.

Thank you for the interview. We wish you only continued success!