Tim West shares his trading experience and secrets

Tim West shares his trading experience and secrets


One of the most frequent questions at the beginning of this year probably was “what does 2015 hold for S&P 500?” Exante spoke to one of the most experienced traders and managers at TradingView.com Tim West. Tim uses a combination of fundamental and technical analysis for trading and during the interview he shared his trading secrets as well as forecasts for S&P 500.

Tell me about your experience in trading and how did you get started?
My trading experience began 30 years ago in 1984 when I started working in a brokerage firm as my college summer job. I bought my first stock in a telephone company MCI back then with my summer salary. MCI later on overtook some of the larger players in the market, so that was my first profitable investment. I thoroughly enjoyed analyzing what the future holds and what companies will be successful.

In 1987 I started managing some money for my family, which went very well during the bull market. After graduating from college I became a broker and started with opening accounts for long term investment with Microsoft, Apple, Lotus and a lot of emerging technology names. However, my goal has been to get into portfolio management and risk management by learning everything that I can about the markets and get as much experience as possible. That is why I went to New York and started working for a major brokerage firm at the time, S.G. Warburg, which is now UBS. I worked on the block trading desk in the equity department from 1990-1994 and just the 6 of us made a significant trading operation that was 3% of the NYSE volume. Going on forward I had an opportunity to start a hedge fund with a friend which moved me away from that job. And that is how I got started in a nutshell.

S&P 500 continues to strengthen and set new highs. What are the technical’s as well as fundamental’s telling you about the current situation?
What I like to look at is a set of multiple variables. I consider fundamentals in terms of earnings as well as forecasts for earnings, which ultimately drive the long term forecast that banks provide. In addition, I also analyze the momentum, profit margin of corporations and then the degree of leverage in corporations. That is where I am doing some research right now, because what has been driving the stock market has not clearly been the economy itself.

What I see is a very slow growth economy with simply the buying back of shares by corporations and borrowing money to buy back shares that have reduced the supply of available equity. Essentially it has been that shift that has taken place. At the same time our economy has been modeling along quite alright, while the rest of the world has been struggling or notching down their estimates for growth. So we have had this flood of money coming into the dollar, which has also made its way into our bond market to earn the 3% return on the US Gov't long-term bonds when they are less than that overseas, for example, in Europe and Japan.

Thus, I think there has been a massive money flow coming into the US equity markets together with corporations buying back their shares, because that is just the only way I can explain why we have been able to continue maintaining this upward trajectory which really is not justified by the underlining earnings growth of the corporations. That is the fundamental backdrop.

On the other hand, the technical backdrop is psychological and the technical’s are certainly more problematic because you do not have the Russell 2000 reaching a new high.

Moreover, I look at the measure of fear, the volatility index and basically the costs of insuring against moves in the market. When the cost of insurance is very low it means that people are very comfortable as well as very sanguine with the level of the market, and that is a problem as I do not believe that the world is all that stable. There is a lot of confidence driven by the Fed standing behind the market, all the central banks around the world driving liquidity and trying to create money to help lift the economies around the world. Therefore, it is feeding its way into the market, but it is not very broad based.

What do you do in case the technical’s are showing you different picture than the fundamentals?
That is the million dollar question. I position myself "market neutral" by finding long positions and short positions to diminish the impact of the markets return on my return. I try to focus on the stocks that are showing relative strength in buying and I want to be short stocks that are at high multiples of earnings and showing signs of relative weakness. I always try to pick solidly-valued stocks that are coming out of low valuation bases. In addition, I want to try to sell short the high flyers that I think are over-owned, over-valued, over-loved and cannot meet estimates. So that’s how I position myself and protect myself against a stock market decline.

So to sum up, I will tilt a little bit to the short side, and use my technical indicators to time my trades. I use a fixed percentage of capital to risk in each trade. That is how I handle it.

To read the seconf part of the interview with Tim West, we encourage you to continue reading our news section.

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