Larry Williams hit headlines when in one year he traded $10 000 into $101-million in the 1987 World Cup Trading Championships.
Ten years later his home-schooled 16-year-old daughter made the news for winning the same competition, trading her $10 000 into more than $110 000. Williams is currently in South Africa conducting seminars around the country.
Born and raised in the cowboy state of Montana, United States, Williams is a weathered commodities and futures trader who makes money from analysing trends, writing books and conducting seminars. Williams is famous for regularly trading $1-million of his own cash in the local market during seminars to show how it’s done.
While his daughter, Michelle Williams, has decided to turn her fortunes to movie-making and is currently in line for an Oscar for her role in Brokeback Mountain, her father bets his money on the physical gold that goes into making little Oscar.
Williams started out as a journalist with a degree from Oregon University and began trading in 1962. Realising he had a knack for it and that there was more money to be made in commodities trading than in journalism, he became a full-time professional trader in 1966.
Williams is one of the world’s most famous commodity traders, having written eight books on the subject. His weekly newsletter, which he started in 1968 and now publishes on his website, is the oldest newsletter on commodities in the US and probably the world.
Williams describes his strategy as based on long-term fundamental conditions. This means he is not interested in the fact that a market is moving, but rather why it is moving.
‘I look for set-ups where the combinations of all the signals are right to open up the safe.”
Only once the fundamentals are in place and the trend is in the right direction, will Williams trade.
On longer term trades, he may only make two to three trades a year, although he will take advantage of short-term ‘bounces” in the market on a weekly basis.
His main belief in trading is to ignore what analysts and advisers are saying and to look at the fundamentals driving the market. He never looks at the price of the stock except to establish whether it is in an upward or downward trend. Williams believes that ‘the trend is your friend”.
He argues that no one can ever predict the top or bottom of a market and he prefers to wait for an established trend to emerge. If the price of the stock is higher than the price six months ago, and even better if the six-month price is higher than the 12-month price, then you know you are in an established upward trend.
If you get a buy signal in this market, you have a good chance of being right. This does mean, however, that for longer term bets the opportunities to trade are not frequent and ‘a trader needs to learn to sit on his hands”.
Williams has established roadmaps, available on his website, which have analysed trading patterns over many years and reflect seasonal tendencies. For example, gold tends to rally around August every year and in South Africa our stock market tends to fall around March and pick up again in mid September.
For all the gold bulls, he says there is one main driver of the gold price: US interest rates. If we enter a period of sustained interest rate hikes as we have seen in the US, gold enters a strong bull run because it is still viewed as a hedge against inflation and interest rates are a reaction to inflation fears. If there are further interest rate hikes or inflation fears in the US in August, which is historically a good time to buy gold, Williams says this would be a perfect buying opportunity.
Although himself not a gold bug, which he considers to be a fanatical religion, he believes that gold is an excellent measure of other commodity stocks and argues that all commodities ‘move in harmony” with gold.
He therefore charts the undervaluation or overvaluation of the commodity relative to gold. If, for example, the price of sugar is undervalued relative to gold and the sugar market is in an upward trend, he sees this as a strong buying signal. If, on the other hand, sugar is overvalued in a downward trend, then it is a strong signal to short the commodity and make money out of further falls in the sugar price.
He also analyses several other indicators that form part of his ‘combination that opens up the safe”. For example, he studies the behaviour of commodity buyers, those people who actually buy commodities to use in production. His theory is that if they are buying up cocoa when cocoa is trading at a historically high price they must know something he doesn’t, so he joins them in buying up some cocoa despite the fact that the price may appear expensive. A strong bull run in the commodity usually follows. He doesn’t need to know why the price is going to keep going up, only that the buyers believe it will and hence are prepared to buy at current high prices to hedge against even higher prices in the near future.
According to Williams’s charts, gold is a good measure of the South African stock market. Internationally he uses US Treasury bonds to measure stock markets but because of our dependency on commodities he has found gold a preferable indicator for the All Share Index. According to both gold and US treasuries, the South African market is looking expensive. If you combine this with his roadmap that shows that the South African market usually takes a hammering in March, he says it may be a good time to start taking profits that you can put back into the market in September when the South African market historically tends to perk up a bit. He is also expecting a strong rally in the US markets later this year but a major setback in 2007.
While this may all sound like a done deal, Williams warns that trading is not for the faint-hearted. Unexpected shocks occur regularly, like China’s attack on soybean speculators and the Iranian president threatening to kill a few speculators and to shut down the stock market, not to mention global seismic events like 9/11. Williams’s advice to potential traders is to ‘learn to live with the flow and always leave something on the table”.