Book Review > Taming the Lion: 100 Secret Strategies for Success

Richard Farleigh’s personal history is a rags to riches story, and the introductory biography is interesting reading on its own. In Taming the Lion, Farleigh explains the strategies he developed during his career as a trader with Bankers Trust Australia and as a hedge fund manager. What sets this book apart from others in the “how to make money” category is that Farleigh’s strategies are generic and can be applied to every investment opportunity and indeed can assist you to select what asset class to invest in.

The one hundred strategies are described in ten chapters and each chapter consists of ten sub-sections. I find this a bit suspicious and feel that the author stretched the point in places in order to come up with a neat ten lots of ten. Reservations aside, this book is still a worthwhile read, not least because Richard Farleigh is obviously highly successful at investing.

Farleigh admits to not using sophisticated analytical techniques and considers minute details “rather tedious.” He is interested in “the big picture and market behaviour” and claims this to be one of his “comparative advantages.” The entire book is essentially about market behaviour. Each chapter is interspersed with entertaining anecdotes about his personal investment successes and failures. At the start I did get a little sick of his stories and wished his real information would be revealed soon. However, once engrossed in the main sections, I found the real-life examples illustrated his strategies effectively.

Farleigh summarises the content of each chapter in his introduction. Chapters 1 and 2 are an overview of how markets behave and an interpretation of why this happens. According to Farleigh, understanding market behaviour is the only comparative advantage that allows an ordinary investor to select investment opportunities that outperform the market. Chapter 3 looks at risk. Farleigh’s recommendations for minimising risk are nothing new - diversify within and across asset classes. He also examines the “stop loss” process and considers it might be unnecessary if his risk-management strategies are followed and these include to “assess the risk and double it” and “risk-adjust the results after the trade.” His advice is to activate your stop loss position if “the loss is threatening to be destructive, you are confused, or if the fundamentals are moving against you.”

The bulk of this book are Chapters 4 to 9, where his key themes are:

1. there are patterns and anomalies in the markets
2. markets are slow to react to structural influences
3. small companies offer more opportunities
4. markets go further than generally expected
5. markets move in underlying trends
6. a view on the fundamentals can be combined with price movements to manage trading positions.

Each of the above themes is presented as a chapter. In Chapter 4: Patterns and Anomalies, the share market, government bonds, currencies, property and commodities are briefly discussed. Farleigh presents a broader view in Chapter 5: Big Ideas. Fundamental economic conditions bolster Farleigh’s investment decisions and “long term opportunities exist if you invest with the prevailing environment.” He provides a checklist for identifying the direction of the economy and then suggests what asset classes may perform better under what conditions. For example, strategy 5.5 is “buy stocks when economic growth is strong and inflation is weak.”

Small companies are a favourite of Farleigh’s. Most of Chapter 6 is dedicated to the details of the checklist he uses to invest in small listed and unlisted companies. Competent management is his most important selection criteria, and then follows the nature of the products, the company’s markets and its ability to grow.

Strategy 7.0 is “prices go further than expected” and Chapter 7 is essentially the analysis of this idea. Farleigh specifically does not support day trading (this itself is one of his strategies!). Chapters 8 and 9 look at a trading model that Farleigh developed on the basis that market prices move in trends. It is perhaps in these chapters that some of the real nitty gritty of the book is located. Some of the strategies include “8.5 - trends represent the gradual dispersal of information, 8.6 - price reaction is delayed by inertia and scepticism, and 8.7 - a rising price attracts buyers.” Trading rules are listed in the explanation of strategy 9.0 where he combines fundamentals with price trends to make decisions on when to buy and then when to sell. Farleigh invests with the consensus view and advises not to “cut winning positions too early”. He contends that contrarian trading is usually irrational.

Chapter 10 is intriguingly titled “Avoiding temptation.” In this final chapter his strategies include “know when to stay out of the market” and more enigmatic ones like “negotiation is an art.” This chapter is not a conclusion. It is essentially some advice about fee minimisation, scepticism about retail products and a reminder to monitor trends and save some of your profits for the long term. The final strategy is “10.9 – follow these strategies and be part of the hedge fund (r)evolution [sic].” Farleigh predicts that hedge funds will become significant components of the financial sector. While there is no detail about how to invest in a hedge fund or create your own, Farleigh believes his 100 secret strategies will help the reader to become their own hedge fund manager.

Overall I feel that there is so much information in this book, that a review chapter would be really useful. Although each of Farleigh’s one hundred strategies is listed before the introduction, perhaps an abbreviated version would have made a worthwhile summary. I would recommend you read this book if you are prepared for a lot of stuff. It is probably one I will keep re-reading as I make investment decisions. I especially like the way it has reminded me that there are other asset classes to invest in other than shares and property and yet the same strategies are applicable.

Anthea Turkington is a member of the AIA.