Christopher Silvester meets Simon Cawkwell, a jolly bear-trader who has made a fortune while wearing his jim-jams.
When I arrive to interview Simon Cawkwell in his South Kensington mansion flat on a wet and windy November morning, he has just closed his short against the dollar. ‘I’ve been open for three years,’ he tells me. ‘I opened the position when it was about a dollar eighty-five and I closed it at two-o-seven today, against sterling.
Dealing in forex is a very specialised subject and I just think that sterling is wildly overvalued, because everything costs far too much in this country – rents, wages, regulation – everything. The whole thing is just a great scam. The fact is these costs will render us wholly uncompetitive in a world where demand is cut drastically back and I just can’t see how sterling will do anything other than decline and drop further.
That’s my bet, though of course I may be completely and utterly wrong. I basically switched a million quid back and I did a million quid in yen. It’s nothing compared to what these hedge funds do.’ Again, this morning he has added to his major short on Northern Rock as well as opening positions on a couple of other shorts.
He sits in his pyjamas all morning, bathes at noon and drinks champagne and wine at lunch, though because he is a diabetic, his wife controls his diet rigorously. There are four computer monitors on his desk, two up and two across. With the mouse, he can shift the cursor from one screen to another. A photo on one screen shows Cawkwell with Tony McCoy: ‘He’s the greatest jockey of all time and as you can see he’s talking to a lump of lard, which you may recognise.’
Cawkwell uses Market Eye, a basic market server, ‘which unfortunately is coming to an end next month because there’s something wrong with the transmission system. I’ve had it for 21 years. I haven’t decided yet what to replace it with. I’m not terrifically impressed by Bloomberg, which incidentally is much more costly. This is a price service for individual stocks, GNI. I’ve had that for ten years.
‘You can place an order for a contract for difference on this screen and it’s all done automatically. I have my email, financial bulletin boards so that people can be abusive, then Echelon a spread-betting service. When things are moving quickly, you’ve got to watch them all at the same time. It’s a worthwhile investment and of course it comes in very handy on Saturdays for horse racing.’
Cawkwell finds himself unable to resist having a bet, though he doesn’t bet merely for the sake of it. ‘There’s got to be information, for which I pay,’ he explains. ‘I learnt a long time ago that, if you want very good information, you have to pay a lot for it.’ He has no preference for the steeplechase or flat seasons, only for races where the horse he has backed wins.
‘I have very catholic taste. If it wins over fences, that’s fine by me; hurdles, that’s fine by me. The objection to dealing in the smaller tracks is that the market’s a bit thin. If you put £25,000 on a horse, the odds will then inevitably evaporate. There is no difference between investing on the stock exchange and horses. I mean, I can’t see why people see it as something different. There is no justifiable difference. It is just that shares are involved in races that take longer. That’s all.
‘I can’t see why people find the fact so difficult to understand. It is not that they are stupid, though I think most people are stupid, it is more that they are intellectually dishonest. They categorise things to comfort themselves. It is completely mad.’
One thing Cawkwell doesn’t like is what people call going on holiday. ‘I think my life’s a holiday. I’m of Lord Redesdale’s opinion, which was that “going abroad is bloody”. I have to do it every now and again because I’m a married man, but I don’t like it and it’s an awful waste of time. You can’t get information and people telephone you from London to ask what’s going on. I say I haven’t a damned clue. I haven’t got any prices or anything. I suppose I follow about two or three hundred equities and I keep all the details in my head and, as each story comes out, the larger story changes. If you go away for a week to Venice or something like that, you’re buggered.’
For example, he and his wife were up in the Lake District recently. He had been waiting for three years to short an AIM-listed stock named Central Africa Mining and Exploration. ‘I have been waiting three years for a particular matter to emerge, and it duly emerged whilst I was on holiday and that cost me a lot of money. I’ve got good information from the Congo and therefore I think I’m in a position to judge.’
His daredevil reputation in the City as ‘Evel Knievel’ may be based on his well-publicised short selling – ‘Indeed, that’s how I make my money,’ he says – but Cawkwell often backs stocks to be winners as well. ‘I have had some huge losses in the bull market that began in March 2003, enormous losses on certain stocks, but equally I’ve had huge wins. For instance, for the family, I bought five million shares in something called Ambrian, and I sold them out a few weeks ago, finally, and I made £3 million for the family.’
He is a major investor in a company called Kryso Resources, which has various gold-mining projects on the go in Tajikistan. ‘It is not yet mining, but I am confident that it will be eventually.
‘I hope it will prove to be about two million ounces, which will make a profit comfortably of upwards of $400 an ounce. And that is just the first of many mines. It is fantastically cheap. I mean the only reservation I had was political instability, but that does not look like it will happen, and provided all goes to plan, Kryso shares are ridiculously cheap. You don’t have to be emotional to value them at £1 right now. You’ve got to do a bit of dreaming, but the dreaming’s not unreasonable.’ (Kryso was 13.75p at the time of speaking.)
Cawkwell did his first bargain when he was 21, but he began studying the stock market when he was at school. ‘I can’t remember exactly but it was some sort of Australian mine. I suppose I bought about £500-worth, or something like that. Of course it would have been an enormous amount for me and it still would have been on credit, I will tell you that. I was at Rugby from 1960 to ’64 and I saw these share prices going up and down at the time. And there were various references to the stock market from parents of contemporaries.
‘Then my father bought some gold shares. I mean he was very much a small investor and still is to this day.’ Now 88 years old, Cawkwell’s father is an emeritus classics fellow at University College, Oxford. ‘I did not go to university at all,’ Cawkwell explains. ‘I don’t think I really assisted my chances of getting into Cambridge. In hindsight, I probably did that subconsciously, and I could not go to Oxford because my father was already there.
‘So the feeling was that there was no other university and that it would be a good idea if I went into the world of work. When you have been brought up surrounded by teachers, dons, priests and so on, it is time to say this is nice, gentlemen, but there is another way of looking at life, which has proved to be true.’
Cawkwell worked as an accountant with Coopers, first in London, then in Central Africa, and in August 1969 he married there a girl he had met here. ‘I was just a bog-standard accountant but I got jolly well paid. Certainly, I got overpaid, I freely admit it. Initially, I was working as an audit clerk for Coopers and then, after that, as accountant for a wholesaling company.’
Was it his African experience that has drawn him to mining stocks, I enquire? ‘Well, as a gambler I am drawn to mining stocks. Mining stocks are dominated by gamblers, it’s a fact. But also I learnt how they work. So when I went on the board of Kryso Resources in December 2004, it was water off a duck’s back.’
His first short, back in 1973, was MFI, the furniture retailers. ‘That absolutely collapsed from 150p to about 10p,’ he remembers. ‘I wasn’t there for the full ride unfortunately because the brokers wanted to earn the brokerage in closing the bargain and I have learned that whenever a stockbroker says he’ll trade, you have to ask yourself the question, “Is he short of brokerage?”
‘You should never take advice from a broker as he always has a vested interest. If you want to make money, you take a position long-term and you hold it, but people keep on dipping in and out of Northern Rock, which of course is nonsense, and I have taken the view that it is completely bust and I have to wait and wait, and, if the price goes up 20p, I will sell some more. I don’t scare easily. When I heard that the Bank of England had lent money to Northern Rock, then I knew it was bust and then I was able to shovel it out at about £5. I made £350,000 on the first assault and now I am short at about half-a-million. And I’m just going to wait until everything collapses. If I am wrong, then I shall lose half-a-million.’
Cawkwell believes that Philip Richards, manager of the RAB Special Situations Fund, made a colossal blunder when he acquired a substantial shareholding in Northern Rock when it first collapsed. ‘I think they made an awful mistake, but everyone makes mistakes from time to time, yours truly included. They have announced a six per cent holding, but I think they will regret it. Northern Rock has lent a lot of money not merely to people who have no intention of repaying, but also to those who can’t repay, because they bought property that is over-valued.
‘What the losses will be it is hard to say, but it wouldn’t surprise me if the eventual tidying up of the mess came to £2.5 billion pounds easily. Northern Rock has made its money out of lending money, but now it has no money to lend. The volume of its business will be so sharply reduced it will be absolutely hopeless.’
Although he spends most days trading and monitoring his stocks, Cawkwell still does accountancy work for various private clients as well as for himself. ‘I am an accountant by nature,’ he says. ‘The use of words and numbers in developing an argument comes naturally to me, not as a matter of training but it just always has. Our own affairs have to be accounted for, and our children have to be accounted for, so the idea of dropping out of accountancy is ridiculous.
‘The requirement for us to think about financial affairs and tax won’t change. I suppose if I had to have an accountant in relation to my own affairs I would spend £30,000 a year, and I still have to understand matters so I can control the quality of his work. I can’t drop out of it even if I wanted to.’
Cawkwell’s life since the mid-1980s has been a roller-coaster ride. ‘I sold my house in Putney in 1986 for £210,000 and I suppose today it is worth £2 million. But I had to sell it because I had school fees and so forth to pay and I owed Douglas Goldstein [the bookmaker] £16,000. I just went along using the profit from that through the ’80s and then I got lucky in July 1990 when I had a double at Ascot which made about £25,000, and with that money I managed to short Polly Peck, and I made £60,000 out of that, and with the money I made out of that I shorted Maxwell [Maxwell Communications Corporation] and made a quarter of a million. By then I was dancing if you know what I mean.’
Did Cawkwell undergo a conversion and decide that shorting stocks was the way forward? ‘I had always thought that, to be honest. I had various dabbles at it, but I was not making big money and I needed big money. You know I was paying school fees at the rate of £4,000 per child per term, and I had two children (which in the late 1980s was a lot of money). When the general downturn occurred in the late 1980s, I was left with some bad debts.
‘But as I say, Maxwell was my making… very grateful for Maxwell. It was not so much that Maxwell set my finances right for what was to prove to be the big run, it wasn’t so much that. It wasn’t so much that finally I got out of debt. It was that I knew then that I had done something, that though I knew other people could do it, I knew they wouldn’t because it required certain skills and I suppose financial courage to do. People don’t trust their judgement when they are frightened, but that is not a condition I have suffered from. I do trust my judgement. So I persisted and that proved to be very profitable and then I learned a lot about stock markets and stock-market lore.’
Cawkwell’s net worth is several million pounds, but he has had a bad time of it since March 2003. But every now and then I scent blood and take a quick half-million, perhaps even a bit more.’ He is convinced that he will do well in the bear market which he believes UK and US stock markets have now entered. ‘There’s no question about it. I expect to make an enormous amount of money in the next couple of years. The index went up about 3,000 to 6,700.
‘Running shorts in that position is extremely difficult, but every now and then I’d just have a flatlining market or a market that drops back after a rally and, believe me, the profits that come in are enormous. On a good morning, with the index down 100 points, you can clear a quarter of a million. You may give it back the next week, but just give me a bear market and you ain’t seen nothing. And I’m talking about serious dough, I’m not talking about hundreds of thousands.
‘There have only been two bear markets in the last hundred years, 29-32 and 73-74. The skill is to know how to play them and I think I’ve got it. Of course, you’ve got to be prepared to change your mind. You don’t chase down stocks on a bad day, but as soon as you get a rally, by Jove, you hit ’em short. It’ll just be carnage. You know the old saying: “Bull markets climb a wall of fear and bear markets descend a slope of hope.”
Cawkwell sees plenty of shorting opportunities on the horizon. ‘There are many delusions to be unravelled. To me, credit has got completely out of hand in this country over many years. Costs are far too high and not sustainable in the longer-term. All this edifice of presumption has got to start coming down. The big money I’ve made has generally been in smaller companies, ignored by institutions, where you can really hammer prices.
‘I wouldn’t want to hold stock in a UK high-street retailer such as M&S at the moment. I made a lot of money out of Bradford & Bingley when it collapsed the other day, but I won’t do it again. And I lost money on the Alliance and Leicester. No, my big one is Northern Rock and that’s perfection. I mean, if you can shoot fish in a barrel, why go looking for them in a river.’