Q: Does my investment get put into a central pool with everyone else’s?

A: No. TAM is not a collective investment fund such as a unit trust, in which everyone’s money goes into a central pool. Your investment goes into your own private WorldSpreads account.

Q: That must mean that you will have very many individual accounts. How can you possibly manage many accounts individually?

A: Your account will be linked to a master account, run by the TAM investment managers. Whatever action they take on the master account is replicated on your account in proportion to the amount of your investment.

Q: Doesn’t that mean that the performance of the individual accounts will be different from the master account, since it will depend upon when I open my account?

A: Yes, that’s true. But that’s no different from any other investment. For example, if you buy units in a unit trust in August, the performance you’ll see by the end of the year will be quite different to someone who had invested in the same unit trust in January.

Q: Surely spread betting is very high risk. Spread betting companies always warn us that that we can lose more money than we put in.

A: That doesn’t apply to TAM. The most you can lose on any given trade is, on average, around 20%. That's because we always use guaranteed stops, not conventional stops. That’s one of several ways that we keep your risk as low as possible.

Q: In what other ways do you reduce the risk?

A: It’s helpful to understand the difference between market risk and portfolio risk. Because TAM is a geared investment (i.e. you don’t have to put up the full amount of your exposure), an investment of, say, £10,000 gives you exposure to around £50,000 of shares. That means that your exposure, or market risk, is higher than if you had invested £10,000 conventionally. However, we don’t use the gearing to give you a bigger exposure to individual shares. Rather, we use the gearing to increase diversification. In fact, a £10,000 investment in TAM is more or less the equivalent of having 50 shares invested in a conventional portfolio of £50,000, with £1,000 invested per share. Diversification decreases portfolio risk. If anything goes wrong with any given trade (for example, the company issues a profit warning), the impact on your overall investment will be quite small.

Q: Even so, surely it’s still theoretically possible to lose a lot of money. Suppose we have another 9/11?

A: As a rough guide, we intend to spread your funds across 50 trades. But because the trades are geared, TAM only has to put up around one-fifth of your exposure - around £100 per trade to gain exposure to £500 of shares. A 20% loss on an individual trade with an exposure of £500 is approximately £100. Therefore if all 50 shares make a £100 loss, that would wipe out your £5,000. But that assumes that no profits had been booked on earlier closed trades, and there were no trades currently in profit, a rather unlikely scenario. Furthermore, in the event of market shocks such as 9/11 - or even bear market conditions - we will hedge your portfolio using short trades, which would generate a profit to offset any losses. So while there is a theoretical possibility that you could lose the majority of your funds, we regard the risk as just that - theoretical. The performance of the Trendwatch notional portfolio since 2000 provides strong support for our assertion.

Q: What’s the difference between a guaranteed stop and a conventional stop?

A: With a conventional stop-loss, a broker will sell your share as quickly as possible after it breaches the stop. However, the price can sometimes move so fast that the actual sale price may be well below your stop. A guaranteed stop does what it says on the tin: Your share will be sold at exactly the price specified, regardless of how far or fast the price falls. Only spread betting companies offer guaranteed stops. WorldSpreads charge a small ‘insurance premium’ for this, but the investment managers consider this to be money well spent.

Q: How do you decide when to close a trade?

A: We don’t! To do so would mean trying to outguess the market. Instead, as the share price rises, we continually adjust the stop upwards so that, on average, it remains around 20% below the peak price. The trade is closed automatically when the price breaches the stop.

Q: Would it not be better to sell when the share hits a target gain – say 30%?

A: Certainly not! Many of the shares the investment managers have recommended in the past have gone on the clock up gains of hundreds of percent. You wouldn’t thank us for selling up for a 30% gain. Like nearly all professional investors, we totally subscribe to the old adage “cut your losses and let your profits run”.

Q:I understand that you’ll mainly be trading in shares. How do you select whichshares to invest in?

A: We use exactly the same highly successful methodology that we use for our investment newsletter Trendwatch. First, we identify all the shares on the London stockmarket that are in the early stages of uptrend. Next, we apply fundamental analysis to those new uptrends to identify companies whose prospects are sufficiently promising to suggest that their share uptrends are likely to continue for several weeks, months or even years. Finally, we choose from this short-list the three shares that we consider to be the pick of the crop.

Q: What would happen if, for some reason, Trendwatch ceased publication?

A: We would continue to use the same share selection methodology as we do for Trendwatch. We would also ensure that we continued to document our reasoning for recommending the share, which would be made available to TAM clients.

Q: Will TAM trade only shares?

A: Not exclusively. Shares (or equities, as they are often called) are our speciality. We have an excellent record of finding strongly performing shares. TAM will mainly go long in equities, but we may also go long or short in other markets.

Q: What do you mean by “going long” and “going short”?

A: “Going short” (or “shorting”) means selling an investment in the expectation that its price will fall so that it can be bought back later at a lower price. “Going long” (but please – not “longing”!) is what most investors do: it means buying an investment in the expectation that it can be sold later at a higher price.

Q: Will TAM go short as well as long?

A: Yes, we will. We’ll mainly go long rather than short, since history teaches us that, over the long term, markets tend to rise. However, if we spot shorting opportunities (for example, a medium term fall in the oil price) we will capitalise on this by going short. We will also go short to hedge our trades.

Q: What exactly is hedging?

A: Hedging involves going short in certain markets so as to compensate for any ‘long’ losses. For example, if we are going through a bear market (where prices are predominantly falling over an extended period of time), rather than closing our long trades – which incurs additional costs – we may instead go short on a UK 100 tracker fund. That will generate a profit as the market falls.

Q: It sounds to me that you operate a bit like a hedge fund.

A: In a couple of respects, that’s true. A hedge fund, like TAM, has the freedom to invest in many different types of security. As the name suggests, a hedge fund will often (though not always) seek to ‘hedge’ its investments. Another characteristic is that hedge funds are normally geared, or leveraged as the Americans call it (meaning the you don’t have to put up the full value of your exposure). The objective of both hedge funds and TAM is to deliver a positive return regardless of market conditions. But in most other respects, TAM is totally different from a hedge fund.

Q: In what ways is TAM different from a hedge fund?

A: Hedge funds are a minefield. There are thousands to chose from, all promising the earth, but most delivering poor returns. When investors want their money back, hedge funds will often lock you in, or discourage you by levying massive redemption fees (TAM does not have a redemption fee). They are so lightly regulated that fraud in the industry is a serious problem, hence the Madoff scandal. One of the reasons that fraud is so easy with hedge funds is that there is no transparency – once you hand over the money, hedge funds are very secretive about how they are using it. In Madoff’s case, the money from new investors was used to boost the returns of earlier investors, a so-called Ponzi (pyramid) scheme.

Q: So how are TAM investors protected from these excesses?

A: First, your money is in your own WorldSpreads account, protected up to certain limits by the Investor Compensation Scheme, You will be able to see exactly how your investment is performing. In other words, TAM has transparency. Second, both WorldSpreads and TAM are regulated by the FSA. Hedge funds are intended mainly for professional or so-called ‘sophisticated’ investors, and have been very lightly regulated in the past. But WorldSpreads and TAM offer their services to the retail market (i.e. non-professionals). The FSA therefore sets the regulatory bar much higher than it does for professional investors.

Q: Do I have the ability to trade on my account?

A: No. We carry out all trades on your behalf. That’s why we call it a “managed spread betting account”.

Q: I suppose one disadvantage of TAM is that investors don’t get dividends.

A: On the contrary – WorldSpreads remits 80% of dividends to your account.

Q: What happens if I want to withdraw my money?

A: You can do this any time you wish, in £5,000 multiples, provided you maintain a minimum balance of £5,000 (unless of course you want to close your account). Just telephone, e-mail or write to us with your request.

Q: … and if I want to add money?

A: A similar principle applies. You can do this any time you wish, in £5,000 multiples. Just telephone, e-mail or write to us with your request.